I'm analyzing two financial time series with Johansen method. A high Correlation coefficient using the Pearson method will help me to detect spurious cointegration models to avoid?

If this is not the case, which is the best method would provide clue about it?

Thank you

  • $\begingroup$ I think it's better to ask for an answer to this question on the Cross Validated site. You can find it here $\endgroup$ – Quantopik May 10 '14 at 1:08
  • $\begingroup$ I have exactly the same doubt. :\ $\endgroup$ – user9320 Jun 17 '14 at 10:17
  • $\begingroup$ I am not sure that the correlation really has anything to do with whether a cointegration model is spurious or not. You might get some additional insight from a principal components analysis? $\endgroup$ – experquisite Aug 7 '14 at 2:24

I would say that you can use Johansens methods to test for rank of co-integration matrix. There are tests for that. If there is no co-integration vector present and both series are I(0) then there is no co-integration. Series still might have some short-run dynamics.

If series are I(1) and no con-integration vector is present then modeling these series by their levels and not differences can cause spurious regressions.

If series are I(1) and their co-integration matrix has reduced rank then they have one co-integration relation.

| improve this answer | |

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.