Abstract
This paper extends the theoretical analysis of the spurious regression and spurious detrending from the usual I(1) processes to the long memory fractionally integrated processes. It is found that when we regress a long memory fractionally integrated process on another unrelated long memory fractionally integrated process, no matter whether these processes are stationary or not, as long as their orders of integration sum up to a value greater than 0.5, the t ratios become divergent and spurious effects occur. Our finding suggests that it is the long memory, instead of nonstationarity or lack of ergodicity, that causes such spurious effects. As a result, spurious effects might happen more often than we previously believed as they can arise even between stationary series while the usual first-differencing procedure may not completely eliminate spurious effects when data possess strong long memory.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
