Which of the following correctly identifies a limitation of logarithmic transformation of variables?
A)Taking log of variables make OLS estimates more sensitive to extreme values in comparison to variables taken in level.
B)Logarithmic transformations cannot be used if a variable takes on zero or negative values.
C)Logarithmic transformations of variables are likely to lead to heteroskedasticity.
D)Taking log of a variable often expands its range which can cause inefficient estimates.

Question

Quizplus · Accepted Answer

Logarithmic transformations cannot be applied directly to zero or negative values because the logarithm of zero and negative numbers is undefined. This limitation can restrict the use of logarithmic transformations in datasets where variables can take on such values.

Which of the Following Correctly Identifies a Limitation of Logarithmic