Spurious Regression: Concept and Some Results

Granger and Newbold (1974) proposed the idea of spurious regression in econometrics. They showed that with I(1) dependent and independent variables, if a regression model is estimated by OLS method, the results may be spurious. This idea is extended to variables with different order of integration. In this paper, we review the literature of spurious regression and show that when the variables have different order of integration, for example I(1) & I(2), and I(1) & I(0), the spurious results may occur.