Spurious nonlinear regressions in econometrics

Young Sook Lee; Tae Hwan Kim; Paul Newbold

doi:10.1016/j.econlet.2004.10.016

Spurious nonlinear regressions in econometrics

Young Sook Lee, Tae Hwan Kim, Paul Newbold

Department of Economics

Research output: Contribution to journal › Article › peer-review

11 Citations (Scopus)

Abstract

In this paper we consider the situation where two independent random walks are used in various frequently-employed nonlinear test and estimation procedures. We show analytically and by simulation that all nonlinear test and estimation procedures wrongly indicate that (i) the two independent random walks have a significant nonlinear relationship, and (ii) the spurious nonlinear relationship becomes stronger as the sample size approaches infinity.

Original language	English
Pages (from-to)	301-306
Number of pages	6
Journal	Economics Letters
Volume	87
Issue number	3
DOIs	https://doi.org/10.1016/j.econlet.2004.10.016
Publication status	Published - 2005 Jun

All Science Journal Classification (ASJC) codes

Finance
Economics and Econometrics

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10.1016/j.econlet.2004.10.016

Cite this

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abstract = "In this paper we consider the situation where two independent random walks are used in various frequently-employed nonlinear test and estimation procedures. We show analytically and by simulation that all nonlinear test and estimation procedures wrongly indicate that (i) the two independent random walks have a significant nonlinear relationship, and (ii) the spurious nonlinear relationship becomes stronger as the sample size approaches infinity.",

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AB - In this paper we consider the situation where two independent random walks are used in various frequently-employed nonlinear test and estimation procedures. We show analytically and by simulation that all nonlinear test and estimation procedures wrongly indicate that (i) the two independent random walks have a significant nonlinear relationship, and (ii) the spurious nonlinear relationship becomes stronger as the sample size approaches infinity.

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VL - 87

SP - 301

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JO - Economics Letters

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Spurious nonlinear regressions in econometrics

Abstract

All Science Journal Classification (ASJC) codes

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