A characterisation of cross-impact kernels
35 Pages Posted: 22 Jul 2021
Date Written: July 19, 2021
Trading a financial asset pushes its price as well as the prices of other assets, a phenomenon known as cross-impact. We consider a general class of kernel-based cross-impact models and investigate suitable parameterisations for trading purposes. We focus on kernels that guarantee that prices are martingales and anticipate future order flow (martingale-admissible kernels) and those that ensure there is no possible price manipulation (no-statistical-arbitrage-admissible kernels). We determine the overlap between these two classes and provide formulas for calibration of cross-impact kernels on data. We illustrate our results using SP500 futures data.
Keywords: Cross impact, market impact, multidimensional processes, market microstructure, market efficiency, statistical arbitrag
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation