Analyze Trading Execution Results

This example shows how to conduct post-trade analysis using transaction cost analysis from the Kissell Research Group. Post-trade analysis includes implementation shortfall, alpha capture, benchmark costs, broker value add, and Z-Score. For details about these metrics, see Post-Trade Analysis Metrics Definitions. You can use post-trade analysis to evaluate portfolio returns and profits. You can measure performance of brokers and algorithms.

To access the example code, enter edit KRGPostTradeAnalysisExample.m at the command line.

Retrieve Market-Impact Parameters and Load Transaction Data

Retrieve the market-impact data from the Kissell Research Group FTP site. Connect to the FTP site using the ftp function with a user name and password. Navigate to the MI_Parameters folder and retrieve the market-impact data in the MI_Encrypted_Parameters.csv file. miData contains the encrypted market-impact date, code, and parameters.

f = ftp('ftp.kissellresearch.com','username','pwd');
mget(f,'MI_Encrypted_Parameters.csv');
close(f)

miData = readtable('MI_Encrypted_Parameters.csv','delimiter', ...
    ',','ReadRowNames',false,'ReadVariableNames',true);

Create a Kissell Research Group transaction cost analysis object k.

k = krg(miData);

Load the example data PostTradeData from the file KRGExampleData.mat, which is included with the Datafeed Toolbox™.

load KRGExampleData.mat PostTradeData

For a description of the example data, see Interpret Variables in Kissell Research Group Data Sets.

Determine Implementation Shortfall Costs

Determine the components of the implementation shortfall costs in basis points. The components are:

  • Fixed cost ISFixed

  • Delay cost ISDelayCost

  • Execution cost ISExecutionCost

  • Opportunity cost ISOpportunityCost

For details about the cost components, see Post-Trade Analysis Metrics Definitions.

PostTradeData.ISDollars = ...
    PostTradeData.OrderShares .* PostTradeData.ISDecisionPrice;
PostTradeData.ISFixed = ...
    PostTradeData.ISFixedDollars ./ PostTradeData.ISDollars*10000;
PostTradeData.ISDelayCost = ...
    PostTradeData.OrderShares .* ...
    (PostTradeData.ISArrivalPrice-PostTradeData.ISDecisionPrice).* ...
    PostTradeData.SideIndicator ./ PostTradeData.ISDollars*1000;
PostTradeData.ISExecutionCost = ...
    PostTradeData.TradedShares .* ...
    (PostTradeData.AvgExecPrice-PostTradeData.ISArrivalPrice).* ...
    PostTradeData.SideIndicator ./ PostTradeData.ISDollars*1000;
PostTradeData.ISOpportunityCost = ...
    (PostTradeData.OrderShares-PostTradeData.TradedShares).* ...
    (PostTradeData.ISEndPrice-PostTradeData.ISArrivalPrice).* ...
    PostTradeData.SideIndicator ./ PostTradeData.ISDollars*1000;

Determine the total implementation shortfall cost ISCost.

PostTradeData.ISCost = PostTradeData.ISFixed + ...
    PostTradeData.ISDelayCost + PostTradeData.ISExecutionCost + ...
    PostTradeData.ISOpportunityCost;

Determine Profit

Determine the alpha capture Alpha_CapturePct. Divide realized profit Alpha_Realized by potential profit Alpha_TotalPeriod.

PostTradeData.Alpha_Realized = ...
    (PostTradeData.ISEndPrice-PostTradeData.AvgExecPrice).* ...
    PostTradeData.TradedShares .* PostTradeData.SideIndicator ./ ...
    (PostTradeData.TradedShares .* PostTradeData.ISArrivalPrice)*10000;
PostTradeData.Alpha_TotalPeriod = ...
    (PostTradeData.ISEndPrice-PostTradeData.ISArrivalPrice).* ...
    PostTradeData.TradedShares .* PostTradeData.SideIndicator ./ ...
    (PostTradeData.TradedShares .* PostTradeData.ISArrivalPrice)*10000;
lenAlpha_Realized = length(PostTradeData.Alpha_Realized);
PostTradeData.Alpha_CapturePct = zeros(lenAlpha_Realized,1);
for ii = 1:lenAlpha_Realized
    if PostTradeData.Alpha_TotalPeriod(ii) > 0
        PostTradeData.Alpha_CapturePct(ii) = ...
        PostTradeData.Alpha_Realized(ii) ./ ...
        PostTradeData.Alpha_TotalPeriod(ii);
    else
        PostTradeData.Alpha_CapturePct(ii) = ...
        -(PostTradeData.Alpha_Realized(ii) - ...
        PostTradeData.Alpha_TotalPeriod(ii)) ./ ...
        PostTradeData.Alpha_TotalPeriod(ii);
    end
end

Determine Benchmark and Trading Costs

Determine benchmark costs in basis points. Here, the benchmark prices are:

  • Close price of the previous day PrevClose_Cost

  • Open price Open_Cost

  • Close price Close_Cost

  • Arrival cost Arrival_Cost

  • Period VWAP PeriodVWAP_Cost

PostTradeData.PrevClose_Cost = ...
    (PostTradeData.AvgExecPrice-PostTradeData.PrevClose).* ...
    PostTradeData.SideIndicator ./ PostTradeData.PrevClose*10000;
PostTradeData.Open_Cost = ...
    (PostTradeData.AvgExecPrice-PostTradeData.Open).* ...
    PostTradeData.SideIndicator ./ PostTradeData.Open*10000;
PostTradeData.Close_Cost = (PostTradeData.AvgExecPrice-PostTradeData.Close).* ...
    PostTradeData.SideIndicator ./ PostTradeData.Close*10000;
PostTradeData.Arrival_Cost = (PostTradeData.AvgExecPrice- ...
    PostTradeData.ArrivalPrice).* ...
    PostTradeData.SideIndicator ./ PostTradeData.ArrivalPrice*10000;
PostTradeData.PeriodVWAP_Cost = (PostTradeData.AvgExecPrice- ...
    PostTradeData.PeriodVWAP).* ...
    PostTradeData.SideIndicator ./ PostTradeData.PeriodVWAP*10000;

Estimate market-impact miCost and timing risk tr costs.

PostTradeData.Size = PostTradeData.TradedShares ./ PostTradeData.ADV;
PostTradeData.Price = PostTradeData.ArrivalPrice;
PostTradeData.miCost = marketImpact(k,PostTradeData);
PostTradeData.tr = timingRisk(k,PostTradeData);

Determine Broker Value Add and Z-Score

Determine the broker value add using the arrival cost and market impact.

PostTradeData.ValueAdd = (PostTradeData.Arrival_Cost-PostTradeData.miCost) * -1;

Determine the Z-Score using the broker value add and timing risk.

PostTradeData.zScore = PostTradeData.ValueAdd./PostTradeData.tr;

For details about the preceding calculations, contact the Kissell Research Group.

See Also

| |

Topics