Modeling Asymmetric Volatility: A News Impact Curve Approach

Abstract

Seasonal production, weather abnormalities, and high perishability introduce a high degree of volatility to potato prices. Price volatility is said to be asymmetric when positive and negative shocks of the same magnitude affect it in a dissimilar way. GARCH is a symmetric model, and it cannot capture asymmetric price volatility. EGARCH, APARCH, and GJR-GARCH models are popularly used to capture asymmetric price volatility. In this paper, an attempt is made to model the price volatility of the weekly wholesale modal price of potatoes for the Agra, Ahmedabad, Bengaluru, Delhi, Kolkata, and Mumbai markets using the above-mentioned models. The News Impact Curves (NICs) are derived from the fitted models, which confirmed the presence of asymmetry in the price volatility. To this end, NICs are used to describe the degree of asymmetry in volatility present in different markets.

Keywords

• GARCH
• News Impact Curve
• volatility