The simulation result of Nunes, Kuan, and Newbold suggests that it is possible to estimate a spurious break for a regression model with I(1) disturbances. In this note, we provide a rigorous proof for this phenomenon.

The standard version of "q" theory, in which investment is positively related to marginal "q", breaks down in the presence of fixed costs of adjustment. With fixed costs, q is a non-monotonic function of investment. Therefore its inverse, which is the traditional investment function, does not...