Order Flow Decomposition for Price Impact Analysis in Equity Limit Order Books

The advent of electronic trading sparked the development of an extensive body of literature dedicated to the study of market microstructure. A key objective in this field is to understand the determinants of price changes, by considering a wide range of variables based on the very rich information provided by the Limit Order Book (LOB). Previously, it has been shown that short term price movements are dictated by the order flows, and, specifically, by the Order Flow Imbalance (OFI). In this work, we study the price impact of order flows, in both contemporaneous and forward-looking scenarios.