On 4/29/08, Mathur, Rajat <Rajat.Mathur@diamondconsultants.com> wrote:

> I am creating some variable transformation for running a liner regression. I have a variable 'Money Spend', I wish to see if change in 'Money Spend' affects my dependent variable. So what transformation should I use? > > Also is there any guide book or rule of thumb for transformations to business problems?

Why might you want to transform the data?

Business problems are no different from other problems. First, you should develop a model based on your knowledge that will test the hypothesis of interest. Second you should examine the residuals to see if they fit the assumptions of the model (independent, identically distributed N(0,sigma)). Although transforming an independent variable is possible, it is more customary to transform the dependent variable if the assumptions are (grossly) violated. The online docs provide a nice description of the procedures. You might want to consider the ROBUSTREG, not to mention the experimental ODS output for the statistical procedures, like REG.