In one of the CFAI online practice questiosn, the explanation states that “VWAP attempts to measure the price benchmark for a trade with greater precision than other measures”.
VWAP is subject to gaming, how come it attempts to measure with greater precision?
VWAP is more precise compared to closing, opening, highest, lowest price. note that VWAP is a benchmark and is used to measure implicit costs of a trade.
…which works best for small trades in non-trending markets. VWAP is not effective for trades that account for a large % of the daily volume (can be gamed).
I don’t think vwap measures implicit costs. Implementation shortfall measures implicit costs.
It does, just like effective spread and implementation shortfall. Implicit costs are calculated versus a reference point, which could be VWAP and any of the above. It’s up to the investor to set an appropriate benchmark for their broker.