How to model a simple stationary series with a non-stationary series?

How to model a simple stationary series with a non-stationary series?

Title

How to model a simple stationary series with a non-stationary series?

Authors

• Wing-Keung Wong
  Department of Finance and Big Data Research Center, Asia University
  Department of Medical Research, China Medical University Hospital, Taiwan
  Business, Economic and Public Policy Research Centre, Hong Kong Shue Yan University
• Minh Tam Pham
  Department of Finance, College of Management, Asia University

Abstract

Wong and Yue (2024) have shown that regressing a stationary series on a non-stationary series could be spurious, and the test from the standard regression model may not be able to obtain meaningful results when it is used to test the regression of a stationary series on a non-stationary series. On the other hand, Wong, Pham, and Yue (2024) have provided three remedies for the test. However, as far as we know, there is no paper, including Wong and Yue (2024) and Wong, Pham, and Yue (2024), that provides an approach to model the regression of a stationary series on a non-stationary series properly. To bridge the gap in the literature, this paper provides a method for modeling the regression of a stationary series on a non-stationary series. We believe that the approach introduced in our paper will be useful for academics and practitioners when they regress a stationary series on a non-stationary series.

Keywords

stationarity, non-stationarity, regression, time series analysis, testing

JEL Classication

C01, C15, C22, C58, C60

How to Cite

Wong, W.-K. & Pham, M. T. (2025). How to model a simple stationary series with a non-stationary series?. The International Journal of Finance, 37, 1–19.