Spurious Regression and Data Mining in Conditional Asset Pricing Models

Cheng-Few Lee (), Hong-Yi Chen () and John Lee ()
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Cheng-Few Lee: Rutgers University, Department of Finance and Economics, Rutgers Business School
Hong-Yi Chen: National Chengchi University, Department of Finance
John Lee: Center for PBBEF Research

Chapter Chapter 9 in Financial Econometrics, Mathematics and Statistics, 2019, pp 243-275 from Springer

Abstract: Abstract Based upon a pioneering paper entitled, “Spurious Regressions in Econometrics,” by Granger and Newbold (J Econ 4: 111–120, 1974), this chapter investigates how the spurious regression phenomenon can affect asset pricing tests. The measure method used to examine this issue is by data mining methodology. Finally, potential solutions to the problems of spurious regression and data mining are discussed in some detail.

Keywords: Asset allocation; Monte Carlo simulations; Persistent instruments; Predicting stock returns; Time-varying returns (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-1-4939-9429-8_9

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DOI: 10.1007/978-1-4939-9429-8_9

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