A Convergent t-statistic in Spurious Regressions

Yixiao Sun

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

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.

Keywords: spurious regression; fractional process; HAC estimates (search for similar items in EconPapers)
Date: 2003-01-01
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Journal Article: A CONVERGENT t-STATISTIC IN SPURIOUS REGRESSIONS (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucsdec:qt150457tv

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