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Spurious Regressions in Financial Economics?

  • Wayne E. Ferson
  • Sergei Sarkissian
  • Timothy Simin

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

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9143.

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Date of creation: Sep 2002
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Publication status: published as Ferson, Wayne, Timothy Simin, and Sergei Sarkissian. "Spurious regressions in Financial Economics?" Journal of Finance 58 (August 2003): 1393-1414.
Handle: RePEc:nbr:nberwo:9143
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