1 / 4

Spurious regression

Spurious regression. The stock market and daily temperature S&P 500 daily closing value and daily maximum temperature in New York, Sep 1 to Dec 31 2008. negative trend in both stochastic trend in S&P500 deterministic trend in temp. Spurious: ln(SP) and ln(Temperature).

sanaa
Download Presentation

Spurious regression

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Spurious regression The stock market and daily temperature S&P 500 daily closing value and daily maximum temperature in New York, Sep 1 to Dec 31 2008 • negative trend in both stochastic trend in S&P500 deterministic trend in temp.

  2. Spurious: ln(SP) and ln(Temperature) Spurious regression: ln(SPt) = α + βln(temperaturet) + ut Another spurious regression would be: SPt = α + βtemperaturet + ut

  3. Correct: Δln(SP) and Δln(Temperature) Spurious regression: Δln(SPt) = α + βΔln(temperaturet) + Δut

  4. Spurious: two simulated RW series Xt = Xt-1 + ωtωt~WN Yt = Yt-1 + εt εt~WN ωtand εt independent Spurious regression: Yt = α + βXt + ut Correct regression: ΔYt = α + βΔXt + vt

More Related