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On the Finite Sample Bhaviour of the Durbin-Watson Test in the Presence of Nonsense Regressions

Author

Listed:
  • Marmol, F.
  • Reboredo, J.C.

Abstract

It is a well-known fact that in linear regressions involving the levels of nonstationary fractionally integrated process spuriously related, the Durbin-Watson statistic converges in probability to zero. In this paper, however, we prove using Monte-Carlo experiments that the behaviour of this statistic in finite samples could be completely different from the expected one in large samples. In particular, we show that in the mean reverting case, i.e., when the memory parameters of the underlying series are less than one, this statistic converges to two if the innovations driving the series have moderate moving average parameters, and even to four when these parameters are large.

Suggested Citation

  • Marmol, F. & Reboredo, J.C., 1997. "On the Finite Sample Bhaviour of the Durbin-Watson Test in the Presence of Nonsense Regressions," UFAE and IAE Working Papers 379.97, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    • Handle: RePEc:aub:autbar:379.97
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    Keywords

    ECONOMETRICS;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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