Last week I finally caved in and joined Twitter!
My intention is to use it in tandem with this blog, but we'll see how that works out. I might get totally carried away.
I'll be tweeting @DEAGiles.
© 2012, David E. Giles
Wednesday, May 30, 2012
More About Spurious Regressions
Students of econometrics are familiar with the "spurious regression" problem that can arise with (non-stationary) time-series data.
As was pointed out by Granger and Newbold (1974), the “levels” of many economic time-series are integrated (or nearly so), and if these data are used in a regression model then a high value for the coefficient of determination (R2) is likely to arise, even when the series are actually independent of each other.
They also demonstrated that the associated regression residuals are likely to be positively autocorrelated, resulting a very low value for the Durbin-Watson (DW) statistic. There was a time when we tended to describe a “spurious regression” as one in which R2 > DW.
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