  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.

Trading and Market Microstructure