Measuring asymmetry
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Date
2014-01-17
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Abstract
A range of primary methods for dealing with price asymmetry, such as the
approaches proposed by WOLFFRAM (1971) and HOUCK (1977), have been established
in the literature, but consensus on which method should be preferred remains elusive.
This note demonstrates that, theoretically, these two definitions are equivalent to a
straightforward notion of asymmetry based on first differences. Using monthly data on
gasoline prices and sales from the U.S., we illustrate, however, that, in practice, these
approaches may yield divergent conclusions with respect to asymmetry.We argue that
in such situations the asymmetry notion based on first differences should be preferred.
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Keywords
irreversibility, decomposition approaches