A note on spurious significance in regressions involving <Emphasis Type="BoldItalic">I</Emphasis>(0) and <Emphasis Type="BoldItalic">I</Emphasis>(1) variables |
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Authors: | Chris Stewart |
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Institution: | 1.London Metropolitan Business School, London Metropolitan University,London,UK |
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Abstract: | We demonstrate that t ratios (the F statistic) for I(1) regressors in a model with an I(0) dependent variable will generally be oversized. This indicates that spurious significance occurs in a situation where
it was not previously identified. We also compare the asymptotic rejection rates of t ratios for various combinations of I(1) and I(0) variables in the two-variable linear regression model. These rejection rates systematically increase with the degree of
autocorrelation, yielding spurious significance, when both variables are either positively or negatively autocorrelated. In
contrast, when one variable is negatively autocorrelated and the other is positively autocorrelated the rejection rates systematically
fall and are undersized. |
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Keywords: | |
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