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.

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Environmental Modelling & Software
Erasmus Research Institute of Management

Franses, P. H., Neele, J., & van Dijk, D. (2001). Modeling asymmetric volatility in weekly Dutch temperature data. Environmental Modelling & Software (Vol. 16, pp. 131–137). doi:10.1016/S1364-8152(00)00076-1