Spurious Common Factors

Bettina Becker () and Stephen Hall

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: We conduct Monte Carlo simulations of principal components analyses of unrelated time series in order to investigate whether the stationarity properties of the data matter, as they do for least-squares regression analysis. We find that for stationary series the results are standard and reflect the lack of a relationship. For non-stationary series however spurious common factors may persist in large samples.

Keywords: Common factor analysis; Principal components; Spurious regression; Non-stationary data. (search for similar items in EconPapers)
JEL-codes: C2 C5 C8 (search for similar items in EconPapers)
Date: 2012-10, Revised 2012-10
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Citations: View citations in EconPapers (2)

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