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What is spurious correlation? a reply to Díaz and Osuna

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  • Andrew Kliman

Abstract

Studies by the author showed that strong cross-sectional correlations between industry-level values and prices are spurious. Díaz and Osuna (2005-6) challenged this finding, arguing that the correlation results are fatally indeterminate, and that the author's procedure for eliminating spurious correlation destroys the value-price correlation because of its differential effect on the variables' standard deviations. Replying to these claims, this note argues that the charge of indeterminacy stems from Díaz and Osuna's misunderstanding of the concept of spurious correlation, and that the author's procedure causes the value-price correlation to vanish because the correlation is spurious.

Suggested Citation

  • Andrew Kliman, 2008. "What is spurious correlation? a reply to Díaz and Osuna," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 31(2), pages 345-356, December.
    • Handle: RePEc:mes:postke:v:31:y:2008:i:2:p:345-356
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    Citations

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    Cited by:

    1. Andrea Vaona, 2014. "A panel data approach to price–value correlations," Empirical Economics, Springer, vol. 47(1), pages 21-34, August.
    2. Vaona, Andrea, 2015. "Price–price deviations are highly persistent," Structural Change and Economic Dynamics, Elsevier, vol. 33(C), pages 86-95.
    3. García-Belmonte, Lizeth & Ventosa-Santaulària, Daniel, 2011. "Spurious regression and lurking variables," Statistics & Probability Letters, Elsevier, vol. 81(12), pages 2004-2010.

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