execution price risk by increasing the possibility of deviating significantly from the benchmark. Another popular execution benchmark is the volume-weighted average price (VWAP) for the stock over the desired trading period, which could be a few minutes or hours for an aggressive trade, or one or more days for a patient trade. However, the VWAP benchmark should only be used for trades that are not too large relative to total volume over the period; otherwise, the trader may be able to influence the benchmark against which he or she is evaluated. Buy-side traders can increasingly make use of alternative trading venues such as electronic communication networks (ECNs), which take advantage of available liquidity to match buyers and sellers directly. Further, ECNs provide buy-side traders more anonymity and greater control over their order flows. ECNs tend to be better for patient trades, however, since a trade might not get executed in an aggressive time frame given the small odds of finding a cross for certain trades. Principal package trading is another way to lower transaction costs relative to traditional agency methods.13 Principal trades may be crossed with the principal's existing inventory positions, or allow the portfolio manager to benefit from the longer trading horizon and superior trading ability of certain intermediaries. EVALUATING RESULTS AND UPDATING THE PROCESS Once an investment process is up and running, it needs to be constantly reassessed and, if necessary, refined. The first step is to compare actual results to expectations; if realizations differ enough from expectations, process refinements may be necessary. Thus, managers need systems to monitor realized performance, risk, and trading costs and compare them to prior expectations. A good performance monitoring system should be able to determine not only the degree of over- or underperformance, but also the sources of these excess returns. For example, a good performance attribution system might break excess returns down into those due to market timing (having a different beta than the benchmark), industry tilts, style differences, and stock selection. Such systems are available from a variety of third-party vendors. An even better system would allow the manager to further disaggregate returns to see the effects of each of the proprietary signals used to forecast returns, as well as the effects of constraints and other portfolio requirements. And, of course, any system will be more accurate if it can account for daily trading and changes in portfolio exposures. Currently, such systems are not available from outside vendors and need to be developed in-house. Investors should also compare realized risks to expectations. At Goldman Sachs, we have developed the concept of the green, yellow, and red zones to compare realized and targeted levels of risk; see Litterman, Longerstaey, Rosengarten, and Winkelmann (2000). Essentially, if realized risk is within a reasonable band Tlease see Kavajecz and Keim (2002).