Faculty of Economics and Business Administration Publications Database

Nonsense Regressions Due to Neglected Time-Varying Means

Volume: 44
Number: 2
Pages: 169 - 182
Month: 4
Year: 2003
Keywords: Regression analysis; Time series analysis; Analysis of covariance

Regressions of two independent time series are considered. The variables are covariance stationary but display time-varying although not trending means. Two prominent examples are level shifts due to structural breaks and seasonally varying means. If the variation of the means is not taken into account, this induces nonsense correlation. The asymptotic treatment is supplemented by experimental evidence.