Multi-Asset Market Impact and Order Flow Commonality

23 Pages Posted: 12 Jan 2021

See all articles by Francesco Capponi

Francesco Capponi

Imperial College London

Rama Cont

University of Oxford

Date Written: October 6, 2020


The empirical finding that market movements in stock prices may be correlated with the order flow of other stocks has led to the notion of "cross-impact" and has prompted the development of multivariate models of market impact. These models are parametrized by a matrix of impact coefficients whose off-diagonal elements are meant to capture how trades in one asset influence the price of other assets, leading to a large number of 'cross-impact' parameters which may not be identified solely based on the covariance of returns with order flow. Moreover, empirical evidence suggests that these cross-impact terms are unstable and change sign randomly over time, which poses a problem for their interpretation and use. We reexamine this empirical evidence from a causal standpoint and offer a simpler explanation for the observed correlation between the returns of an asset and the order flow imbalance of other assets, in terms of common components in order flow across stocks which may naturally arise from multi-asset trading strategies.

We provide empirical evidence from order flow and price changes of NASDAQ-100 stocks to support this explanation. Our results show the main determinants of impact to be idiosyncratic order flow imbalance as well as a market order flow factor common across stocks. Additional ‘cross-impact’ terms account for less than 1% of market impact. This leads to a parsimonious approach for causal modelling of multi-asset impact, which does not require introducing any concept of "cross-impact".

Keywords: market impact, cross-impact, liquidity, volatility

JEL Classification: C58, G12

Suggested Citation

Capponi, Francesco and Cont, Rama, Multi-Asset Market Impact and Order Flow Commonality (October 6, 2020). Available at SSRN: or

Francesco Capponi

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Rama Cont (Contact Author)

University of Oxford ( email )

Mathematical Institute
Oxford, OX2 6GG
United Kingdom


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