Stationarity of time series and the problem of spurious regression

Baumöhl, Eduard and Lyócsa, Štefan (2009): Stationarity of time series and the problem of spurious regression.

Abstract

The goal of this paper was to introduce some general issues of non-stationarity for practitioners, students and beginning researchers. Using elementary techniques we examined the effect of non-stationary data on the results of regression analysis. We further shoved the effect of larger sample sizes on the spuriousness of regressions and we also examined the well known “rule of thumb” of how to identify spurious regressions. We also demonstrated the problem of spurious regression on a practical example, using closing prices of stock market indices from CEE markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: stationarity, time series data, various unit root tests, spurious regression, the R-squared and the Durbin – Watson statistics “rule of thumb”, CEE stock markets
• Subjects: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General

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