Trading Lightly: Cross-Impact and Optimal Portfolio Execution
Trading and Market Microstructure
2017-08-23 v3
Abstract
We model the impact costs of a strategy that trades a basket of correlated instruments, by extending to the multivariate case the linear propagator model previously used for single instruments. Our specification allows us to calibrate a cost model that is free of arbitrage and price manipulation. We illustrate our results using a pool of US stocks and show that neglecting cross-impact effects leads to an incorrect estimation of the liquidity and suboptimal execution strategies. We show in particular the importance of synchronizing the execution of correlated contracts.
Keywords
Cite
@article{arxiv.1702.03838,
title = {Trading Lightly: Cross-Impact and Optimal Portfolio Execution},
author = {Iacopo Mastromatteo and Michael Benzaquen and Zoltan Eisler and Jean-Philippe Bouchaud},
journal= {arXiv preprint arXiv:1702.03838},
year = {2017}
}
Comments
7 pages, 4 figures