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Spurious Stochastics in a Short Time-Series Panel Data

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  • Clive W. J. Granger
  • Namwon Hyung

Abstract

This paper analyzes the effects of individual-specific size factors in a dynamic panel regression model. Theory and simulation show that an individual-specific size factor, with a fat-tailed distribution or a time-varying property, may cause spurious stochastics. If a pair of panel variables depends on size in some way, then they appear to find a strong relationship, if the size variable is not used in the regression, even if the variables are otherwise independent. Moreover, forecasts based on models that have omitted size-factors are affected seriously by the property of the size-factors. A pooling regression with very short time-series appears to fit well in sample, but forecasts poorly out-of-sample if the neglected individual-specific size-factor has a fat-tailed distribution.

Suggested Citation

  • Clive W. J. Granger & Namwon Hyung, 1999. "Spurious Stochastics in a Short Time-Series Panel Data," Annals of Economics and Statistics, GENES, issue 55-56, pages 299-315.
    • Handle: RePEc:adr:anecst:y:1999:i:55-56:p:299-315
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    Cited by:

    1. Lin, Shuanglin & ROWE, Wei, 2006. "Determinants of the profitability of China's regional SOEs," China Economic Review, Elsevier, vol. 17(2), pages 120-141.
    2. Denitsa Angelova & Jan Käbel, 2019. "Weather Volatility and Production Efficiency," Sustainability, MDPI, vol. 11(24), pages 1-12, December.

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