Spurious nonlinear regressions in econometrics

Young Sook Lee, Tae Hwan Kim, Paul Newbold

Research output: Contribution to journalArticle

10 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 languageEnglish
Pages (from-to)301-306
Number of pages6
JournalEconomics Letters
Volume87
Issue number3
DOIs
Publication statusPublished - 2005 Jun 1

Fingerprint

Random walk
Econometrics
Nonlinear regression
Nonlinear relationships
Sample size
Simulation

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

Lee, Young Sook ; Kim, Tae Hwan ; Newbold, Paul. / Spurious nonlinear regressions in econometrics. In: Economics Letters. 2005 ; Vol. 87, No. 3. pp. 301-306.
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Spurious nonlinear regressions in econometrics. / Lee, Young Sook; Kim, Tae Hwan; Newbold, Paul.

In: Economics Letters, Vol. 87, No. 3, 01.06.2005, p. 301-306.

Research output: Contribution to journalArticle

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