Nonsense regressions due to time-varying means

Preprint

preprint

Published in RePEc

Abstract

Regressions of two independent time senes are considered. The variables are covariance stationary but display time-varying although not trending means. Two prominent examples are mean shifts due to structural breaks and seasonally varying means. If the variation of the means is not taken into account, this induces nonsense correlation. The asymptotic treatment is supplemented by experimental evidence.

Keywords

NONSENSE REGRESSIONS
MEANS REGRESSIONS
INDEPENDENT TIME
REGRESSIONS DUE
VARYING MEANS
TIME SENES
SEASONALLY

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