Spurious regressions of stationary AR(p) processes with structural breaks
Chu, Ba M. and Kozhan, Roman (2011) Spurious regressions of stationary AR(p) processes with structural breaks. Studies in Nonlinear Dynamics & Econometrics, Vol.15 (No.1). ISSN 1558-3708 Official URL: http://dx.doi.org/10.2202/1558-3708.1781 AbstractWhen a pair of independent series is highly persistent, there is a spurious regression bias in a regression between these series, closely related to the classic studies of Granger and Newbold (1974). Although this is well known to occur with independent I(1) processes, this paper provides theoretical and numerical evidence that the phenomenon of spurious regression also arises in regressions between stationary AR(p) processes with structural breaks, which occur at different points in time, in the means and the trends. The intuition behind this is that structural breaks can increase the persistence levels in the processes (e.g., Granger and Hyung (2004)), which then leads to spurious regressions. These phenomena occur for general distributions and serial dependence of the innovation terms. | Item Type: | Journal Article |
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| Subjects: | Q Science > QA Mathematics |
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School > Finance Group
Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Autoregression (Statistics) |
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| Journal or Publication Title: | Studies in Nonlinear Dynamics & Econometrics |
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| Publisher: | Berkeley Electronic Press |
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| ISSN: | 1558-3708 |
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| Date: | February 2011 |
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| Volume: | Vol.15 |
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| Number: | No.1 |
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| Status: | Peer Reviewed |
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| Publication Status: | Published |
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| Access rights to Published version: | Open Access |
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