Faculty of Economics and Business Administration Publications Database

Random Walks with Drifts: Nonsense Regression and Spurious Fixed-Effect Estimation

Volume: 80
Number: 2
Pages: 287 - 296
Month: October
ISSN-Print: 0304-4076
Link External Source: Online Version
Year: 1997
Keywords: Spurious regression; Fixed-effect models; Drifts
Abstract: The paper analyses the regression of two independent randomwalks with drifts. Applying the nonsenseregression results to panel data, it is shown that the convergence to pseudo true values also applies to the estimation of (spurious) fixed-effects models. Simulated evidence reveals potential interpretation problems in finite samples.