my model is simple, i regress individual stock liquidity on market liquidity for 500 stocks using following equation IL = a + b1 ML +e i regress it for every stock for every month over a period of 7 years, i extract the R2 from the above equations for every stock in every month, calculate the cross sectional average every month. hence i have a time series monthly R2 for a period of 7 years, which represent the liquidity commonality of the market. as R2 is bouded between 0 and 1, i perform a logit transformation. i understand that the values obtained from logit transformations are all negative because most of the values of orignal R2 are between .04 and .2 now i want to regress this using OLS , on the monthly market returns, abs + monthly market returns, and abs negative monthly market returns. monthly market returns have mostly the value between 0.1 and .2, but i get coefficients like 100 and 22 which make absolutely no economic sense. I dont know how to interpret the coefficients, or if i am doing something wrong while estimating the last equation. Thanks but i ge
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