Measuring Market Impact
(Fourth Quarter 2009)

How much of your alpha disappears in the trading part of your investment process? The question seems simple enough, but there is little consensus on the best way to measure market impact. It is no small task and often ignored, but the best managers and plan sponsors will be collecting the relevant market impact data, choosing the right benchmark, analyzing the data, and then modifying the investment process based on the analysis.

For many managers it is the trading part of the investment process that has changed the most in recent years, as algorithms, list optimizers, dark pools, aggregators, smart routers, and pre and post trade analytics are now essential parts of daily routines. But for all of these changes in how we trade, are we really better off?

This quarter our research insight offers our thoughts on measuring market impact, while looking at some of our own market impact data and the conclusions that we draw from it.


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