Journal of Finance Vol. 58 No. 4 2003

Spurious Regressions in Financial Economics?

Wayne E. Ferson^1,2,3,4,5,6; Sergei Sarkissian^1,2,3,4,5,6; Timothy T. Simin^1,2,3,4,5,6

¹ Boston College · ² Pennsylvania State University · ³ National Bureau of Economic Research · ⁴ Université de Sherbrooke · ⁵ University of Washington · ⁶ McGill University

Abstract

Even though stock returns are not highly autocorrelated, there is a spurious regression bias in predictive regressions for stock returns related to the classic studies of Yule (1926) and Granger and Newbold (1974) . Data mining for predictor variables interacts with spurious regression bias. The two effects reinforce each other, because more highly persistent series are more likely to be found significant in the search for predictor variables. Our simulations suggest that many of the regressions in the literature, based on individual predictor variables, may be spurious.

DOI

10.1111/1540-6261.00571

Volume

58

Issue

4

Pages

1393-1413

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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