Effective Spread vs. Implementation Shortfall
Could someone give me a sanity check on this Portfolio Construction reading?
End of Module 6.01 defines effective spread as using "the midquote price at the time of the trade."
At the bottom of the same page, though, it says that the "effective spread provides a more general estimate of the cost of trading. It uses the midquote price (the average, or midpoint, of the bid and the ask prices at the time the order was entered) as the benchmark price."
Which one is it? Intuitively, the definition later on for Implementation Shortfall suggest that one is based on midpoint at order entry, since it's supposed to capture all implicit and explicit costs. By process of elimination that means the Effective Spread is based on the midpoint at execution, right?