To calculate the implementation shortfall, we must also add in the delay costs and the explicit costs. The delay costs are calculated using the difference between the closing price on the day an order was not filled and the benchmark price. It is weighted by the portion of the order filled. It is (700 / 1,000) × ($60.05 − $60.00) / $60.00 = 0.06%.

The explicit costs are the commission as a percent of the paper portfolio investment: $19 / $60,000 = 0.03%.

The total implementation cost is the sum of the explicit costs, the realized profit and loss, the delay costs component, and the missed trade opportunity cost component: 0.03% + 0.02% + 0.06% + 0.04% = 0.15%.

If the market return was 0.5% over the time period of this trading and the beta was 1.3 for Allen Materials, then the expected return for it would be 0.5% × 1.3 = 0.65%. Subtracting this from the 0.15% results in a market-adjusted implementation shortfall of 0.15% − 0.65% = -0.50%. With this adjustment, the manager's trading costs are actually negative. In other words, in the trading process, the manager "lost out" on a return of 0.15%, which is less than the expected return of 0.65%. So relatively speaking, the manager did not incur costs from trading