TY - JOUR T1 - Choosing Benchmarks vs. Choosing Strategies JF - Trading SP - 71 LP - 74 VL - 2006 IS - 1 AU - George Sofianos Y1 - 2006/03/20 UR - http://guides.pm-research.com/content/2006/1/71.abstract N2 - A crucial ingredient in evaluating execution quality is the choice of benchmark: evaluate execution prices relative to what? In this article, we discuss two popular benchmarks: comparing execution prices to VWAP and comparing execution prices to a pre-trade price. We show that if the executions evaluated affect the market VWAP, then the VWAP benchmark may lead to sub-optimal decisions. Traders, for example, may adopt a more costly execution strategy. When analyzing execution quality, therefore, the VWAP benchmark lets you down when you need it most: in evaluating difficult orders that may affect market prices. Our recommendation is to consistently use a pre-trade benchmark in evaluating different execution strategies (or traders or venues). ER -