Pitfalls in the use of Time as an Explanatory Variable in Regression

Charles Nelson and Heejoon Kang

No 30, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: Regression of a trendless random walk on time produces R-squared values around .44 regardless of sample length. The residuals from the regression exhibit only about 14 percent as much variation as the original series even though the underlying process has no functional dependence on time. The autocorrelation structure of these "detrended" random walks is pseudo-cyclical and purely artifactual. Conventional tests for trend are strongly biased towards finding a trend when none is present, and this effect is only partially mitigated by Cochrane-Orcutt correction for autocorrelation. The results are extended to show that pairs of detrended random walks exhibit spurious correlation.

Date: 1983-11
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published as Nelson, Charles R. and Heejoon Kang. "Pitfalls in the Use of Time as an Explanatory Variable in Regression," Journal of Business and Economic Statistics, Vol. 2, No. 1, January 1984, pp. 73-82.

Downloads: (external link)
http://www.nber.org/papers/t0030.pdf (application/pdf)

Related works:
Journal Article: Pitfalls in the Use of Time as an Explanatory Variable in Regression (1984)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberte:0030

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/t0030

Access Statistics for this paper

More papers in NBER Technical Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().