1. What is spurious regression? Sayed Hossain posted the following figure below.
Filippo Bonanno commented> When you regress two non-stationary variables and there is a non-sense statistical relationship (like rain fall and income per capita in some regions). For example if the explanatory power of the regression R-Sq is exceptionally high, this may mean that you regressed non stationary-varianles.
Stratos D. Tserkezos commented> We have to go to Yule's (1927) paper and look at one great example there.... nonsense correlations that are presented as significant cause they are based on contemporaneous movements of non-stationary series.... we can also see this with a Monte Carlo simulation of two non-stationary series (yt= yt-1 +et and xt= xt-1 +ut) for a number of replications and see the actual problem when we estimate y = a + bx
Idoko Gambit Itodo commented> Very high R square, low D-W stats, significant parameters in a regression of variables that, theoretically, should not be correlated.
Takwana Chaminama commented> Nonsense regression - if R squared is high than DW Stats there is a good reason to suspect that there is spurious regression George Udny Yule (1927)
Tella Oluwatoba Ibrahim commented>A simple rule of model states that if a researcher is faced with a complex and simple model, one has to go for the simple model provided it can yield same valid result as the complex model.