1 Cointegration. - University of Houston
t is an independent random walk (so that x t is independent of y s for all s). Then the true value of 1 is of course 0, but the limiting distribution of ^ 1 is such that ^ 1 converges to a function of Brownian motions. This is called 1. a spurious regression, and was rst noted by Monte Carlo studies by Granger and Newbold
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