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Modeling asymmetric volatility in weekly Dutch temperature data

Philip Hans Franses, Jack Neele and Dick van Dijk ()

No EI 9840, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: In addition to clear-cut seasonality in mean and variance, weekly Dutch temperature data appear to have a strong asymmetry in the impact of unexpectedly high or low temperatures on conditional volatility. Furthermore, this asymmetry also shows fairly pronounced seasonal variation. To describe these features, we propose a univariate seasonal time series model with asymmetric conditionally heteroskedastic errors. We fit this (and other, nested) model(s) to 25 years of weekly data. We evaluate its forecasting performance for 5 years of hold-out data and find that the imposed asymmetry leads to better out-of-sample forecasts of temperature volatility.

Keywords: asymmetric volatility; seasonal variation; temperature volatility; weekly dutch temperature (search for similar items in EconPapers)
Date: 1998-09-21
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