How spurious features arise in case of fractional cointegration
It is well-known that a linear regression among the levels of independent highly persistent processes yields high values of the corresponding coefficient of determination along with divergent I-ratios and low values of the Durbin-Watson statistic. In fact, such a behaviour of the customary OLS statistics has become a sort of definition of the so-called spurious regressions in econometrics. In this paper, however, we show how these spurious stylized facts also arise among nonstationary (fractionally) cointegrated processes.
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