Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2008/16: A regression surprise resolved

Jostein Lillestøl () and Jonas Andersson ()
Additional contact information
Jostein Lillestøl: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
Jonas Andersson: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway

Abstract: In this note we explore the following surprising fact: In regression with trend and seasonality, the prediction risk is constant for all seasons of a new cycle, despite the fact that it increases with time when the seasons are left out. Awareness of this may be useful to both the practicing statistician and to teachers of statistics. The challenge of resolving the issue may also be given to students of statistics as a research project.

Keywords: Trend and seasonality; Prediction risk; Paradox

JEL-codes: C25; C35

6 pages, September 22, 2008

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