Cross-impact of order flow imbalance in equity markets
We investigate the impact of order flow imbalance (OFI) on price movements in equity markets in a multi-asset setting. First, we propose a systematic approach for combining OFIs at the top levels of the limit order book into an integrated OFI variable which better explains price impact, compared to...
| Main Authors: | , , |
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| Format: | Journal article |
| Language: | English |
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Taylor and Francis
2023
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| _version_ | 1824458733545062400 |
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| author | Cont, R Cucuringu, M Zhang, C |
| author_facet | Cont, R Cucuringu, M Zhang, C |
| author_sort | Cont, R |
| collection | OXFORD |
| description | We investigate the impact of order flow imbalance (OFI) on price movements in equity markets in a multi-asset setting. First, we propose a systematic approach for combining OFIs at the top levels of the limit order book into an integrated OFI variable which better explains price impact, compared to the best-level OFI. We show that once the information from multiple levels is integrated into OFI, multi-asset models with cross-impact do not provide additional explanatory power for contemporaneous impact compared to a sparse model without cross-impact terms. On the other hand, we show that lagged cross-asset OFIs do improve the forecasting of future returns. We also establish that this lagged cross-impact mainly manifests at short-term horizons and decays rapidly in time. |
| first_indexed | 2025-02-19T04:30:35Z |
| format | Journal article |
| id | oxford-uuid:c9693e75-bd08-458d-b6ea-90e8a25651e2 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2025-02-19T04:30:35Z |
| publishDate | 2023 |
| publisher | Taylor and Francis |
| record_format | dspace |
| spelling | oxford-uuid:c9693e75-bd08-458d-b6ea-90e8a25651e22024-12-16T15:08:56ZCross-impact of order flow imbalance in equity marketsJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:c9693e75-bd08-458d-b6ea-90e8a25651e2EnglishSymplectic ElementsTaylor and Francis2023Cont, RCucuringu, MZhang, CWe investigate the impact of order flow imbalance (OFI) on price movements in equity markets in a multi-asset setting. First, we propose a systematic approach for combining OFIs at the top levels of the limit order book into an integrated OFI variable which better explains price impact, compared to the best-level OFI. We show that once the information from multiple levels is integrated into OFI, multi-asset models with cross-impact do not provide additional explanatory power for contemporaneous impact compared to a sparse model without cross-impact terms. On the other hand, we show that lagged cross-asset OFIs do improve the forecasting of future returns. We also establish that this lagged cross-impact mainly manifests at short-term horizons and decays rapidly in time. |
| spellingShingle | Cont, R Cucuringu, M Zhang, C Cross-impact of order flow imbalance in equity markets |
| title | Cross-impact of order flow imbalance in equity markets |
| title_full | Cross-impact of order flow imbalance in equity markets |
| title_fullStr | Cross-impact of order flow imbalance in equity markets |
| title_full_unstemmed | Cross-impact of order flow imbalance in equity markets |
| title_short | Cross-impact of order flow imbalance in equity markets |
| title_sort | cross impact of order flow imbalance in equity markets |
| work_keys_str_mv | AT contr crossimpactoforderflowimbalanceinequitymarkets AT cucuringum crossimpactoforderflowimbalanceinequitymarkets AT zhangc crossimpactoforderflowimbalanceinequitymarkets |