Question

A spurious regression refers to a situation where:____.

a. the direction of the relationship between the dependent variable and the explanatory variables is uncertain.
b. even though two variables are independent, the OLS regression of one variable on the other indicates a relationship between them.
c. a few important and necessary explanatory variables are left out of a regression equation, thus leading to inefficient and inconsistent forecasts.
d. at least one of the variables used in a regression equation does not have a unit root and the error terms are heteroskedastic.

Answer 1

A spurious regression describes the mistaken identification of a relationship in OLS regression between two independent variables, typically arising in non-stationary time series data.

Step-by-step explanation:

A spurious regression refers to a situation where two variables are actually independent, but the Ordinary Least Squares (OLS) regression shows a relationship between them. This can occur when non-stationary time series data are used in the regression analysis, or when the variables coincide with the same trend over time just by chance. Such relationships demonstrate correlation without causation, often leading to misleading and invalid inference, as the apparent relationship is coincidental rather than indicative of a true underlying causal connection.

In this case, option b is the correct answer: even though two variables are independent, the OLS regression of one variable on the other indicates a relationship between them. These findings can be falsely interpreted as meaningful when in reality, they may simply be due to chance or the presence of a common trend rather than a substantive phenomenon.

Answer 2

b. even though two variables are independent, the OLS regression of one variable on the other indicates a relationship between them.

Step-by-step explanation:

An experiment can be defined as an investigation which typically involves the process of manipulating an independent variable (the cause) in order to be able to determine or measure the dependent variable (the effect).

This ultimately implies that, an experiment can be used by scientists to show or demonstrate how a condition causes or gives rise to another i.e cause and effect, influence, behavior, etc in a sample.

In an experiment , the variable being manipulated by an experimenter is known as an independent variable while the dependent variable is the event expected to change when the independent variable is manipulated

A spurious regression refers to a situation where even though two (2) variables are independent, the ordinary least squares (OLS) regression of one independent variable on the other variable indicates a relationship between them.

An ordinary least squares (OLS) regression is typically designed to be used in estimating unknown variables or parameters in a linear regression model.