Asymmetry: Resurrecting the roots

• We argue that asymmetry can be captured in a highly intuitive manner with first differences.
• Theoretically, this definition is equivalent to those of Wolffram (1971) and Houck (1977).
• In practice, though, these approaches may yield divergent conclusions on asymmetry.
• In such situations, the asymmetry concept based on first differences is advantageous.

This note provides for a didactic survey on a range of primary methods for dealing with price asymmetry. Using Wolffram's (1971) stylized example, we argue that asymmetry can be captured in a straightforward and highly intuitive manner with first differences. While this asymmetry definition is more readily interpretable than the alternatives proposed by Wolffram (1971) and Houck (1977), we demonstrate that, theoretically, all three of these definitions are equivalent. Using data on U.S. coffee consumption, however, we illustrate that, in practice, these approaches may yield divergent conclusions on asymmetry. In such situations, the asymmetry concept based on first differences is advantageous.