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Download the Paper (900 K, PDF file) - January 1, 2003 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
This paper proposes a convergent t-statistic for spurious regressions. The new t-statistic is based on the heteroscedasiticity and autocorrelation consistent (HAC) standard error estimate with the bandwidth equal to the sample size. Using autocovariances of all lags, the so-defined HAC estimator is capable of capturing the high persistence of the regressor and regression residuals. It is shown that the new t-statistic converges to a non-degenerate limiting distribution for all cases of spurious regressions considered in the literature. This finding suggests that inferences based on the new t-statistic and asymptotic theory developed in this paper will not result in the finding of a significant relationship that does not actually exist.

SUGGESTED CITATION:
Yixiao Sun, "A Convergent t-statistic in Spurious Regressions" (January 1, 2003). Department of Economics, UCSD. Paper 2003-02.
http://repositories.cdlib.org/ucsdecon/2003-02