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A CONVERGENT t-STATISTIC IN SPURIOUS REGRESSIONS

Published online by Cambridge University Press:  01 October 2004

Yixiao Sun
Yixiao Sun
Affiliation:
University of California, San Diego
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Abstract

This paper investigates the asymptotic properties of the t-statistic in spurious regressions when the bandwidth in the estimation of the heteroskedasticity and autocorrelation consistent (HAC) standard error is set proportional to the sample size. Using autocovariances of large lags, the so-defined HAC estimator is capable of capturing the high persistence of the regressor and regression residuals. It is shown that the resulting t-statistic converges to a nondegenerate limiting distribution for all cases of spurious regressions considered in the literature. This finding sheds some new light on the nature of spurious regressions.I am very grateful to Bruce Hansen and two anonymous referees for helpful comments and suggestions. All remaining errors and omissions are mine alone.

Type
Research Article
Information
Econometric Theory , Volume 20 , Issue 5 , October 2004 , pp. 943 - 962
Copyright
© 2004 Cambridge University Press

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