Units of measurement and the inverse hyperbolic sine transformation

Ghislain B D Aihounton and Arne Henningsen

The Econometrics Journal, 2021, vol. 24, issue 2, 334-351

Abstract: SummaryThe inverse hyperbolic sine (IHS) transformation is frequently applied in econometric studies to transform right-skewed variables that include zero or negative values. We show that regression results can heavily depend on the units of measurement of IHS-transformed variables. Hence, arbitrary choices regarding the units of measurement for these variables can have a considerable effect on recommendations for policies or business decisions. In order to address this problem, we suggest a procedure for choosing units of measurement for IHS-transformed variables. A Monte Carlo simulation assesses this procedure under various scenarios, and an empirical illustration shows the relevance and applicability of our suggested procedure.

Keywords: regression analysis; inverse hyperbolic sine; arcsinh; unit of measurement; zero values; scale factor (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (44)

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Working Paper: Units of Measurement and the Inverse Hyperbolic Sine Transformation (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:emjrnl:v:24:y:2021:i:2:p:334-351.

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