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st: logistic tranformation, proportion variables

From   Marck Bulter <[email protected]>
To   [email protected]
Subject   st: logistic tranformation, proportion variables
Date   Thu, 13 Dec 2007 04:06:39 +0100

Dear Statalisters,

I have a question that is not entirely related to Stata. Do hope that you forgive me.

Assume the following model,

*ivreg* pstrmon price maturity age coupon pstrmonprev pstrprev intrest ivol compl (precmon = precmonprev)

Where pstrmon, pstrmonprev, precmon and precmonprev are all proportions. In this case, value bond A / total value bonds, etc. Therefore, it can take any value between 0 and 1, 0 and 1 included.
These last 4 variables are heavily left skewed. Post estimations, resid is heteroskedastic, and resid is not normal distributed.
On the Statalist server I have found several references to logistic transformations, ln(y/1-y):

If I transform the 4 variables using logistic transformation, the 4 variables or no longer skewed, resid is almost homoskedastic, and resid is almost normal distributed.
But my question is, is this transformation allowed, as I have mostly seen only references of transformation of the dependent variable.
In addition, the transformation makes the interpretation of the coefficients hard, any comment on this?

Kind regards,
Marck Bulter

A passionate Stata user.

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