Random walks with drifts: Nonsense regression and spurious fixed-effect estimation. (English) Zbl 0887.62088

Entorf, Horst

J. Econom. 80, No. 2, 287-296 (1997).

Summary: The paper analyses the regression of two independent random walks with drifts. Applying the nonsense regression 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.

MSC:

62M05	Markov processes: estimation; hidden Markov models
62M10	Time series, auto-correlation, regression, etc. in statistics (GARCH)
62P20	Applications of statistics to economics

Keywords:

spurious regressions; fixed-effect models; random walks; drifts

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