The modified R a robust measure of association for time series

Atiq Rehman and Muhammad Malik

MPRA Paper from University Library of Munich, Germany

Abstract: Since times of Yule (1926), it is known that correlation between two time series can produce spurious results. Granger and Newbold (1974) see the roots of spurious correlation in non-stationarity of the time series. However the study of Granger, Hyung and Jeon (2001) prove that spurious correlation also exists in stationary time series. These facts make the correlation coefficient an unreliable measure of association. This paper proposes ‘Modified R’ as an alternate measure of association for the time series. The Modified R is robust to the type of stationarity and type of deterministic part in the time series. The performance Modified R is illustrated via extensive Monte Carlo Experiments.

Keywords: Correlation Coefficient; Spurious Regression; Stationary Series (search for similar items in EconPapers)
JEL-codes: C01 C15 C52 C63 (search for similar items in EconPapers)
Date: 2014-04-24
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (5)

Published in Electronic Journal of Applied Statistical Analysis 1.7(2014): pp. 1-13

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:60025

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