Spurious Regressions in Financial Economics?

Wayne E. Ferson, Sergei Sarkissian, Timothy T. Simin

Research output: Contribution to journalReview articlepeer-review

223 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)1393-1414
Number of pages22
JournalJournal of Finance
Volume58
Issue number4
DOIs
StatePublished - Aug 2003

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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