I've been tasked with performing a propensity score matching and to measure the standardised difference
for every covariate to assess the quality of fit. Details are given here and some SAS code here. For completeness, the standardised difference
is defined for continuous covariates as:
$$
\frac{(\bar{x}_1-\bar{x}_0)}{\sqrt{\frac{s^2_1+s^2_0}{2}}}
$$
where $\bar{x}_1$ and $s^2_1$ are the mean and variance respectively of the covariate where the treatment is 1. If the covariate is dichotomous, the standardised difference
is defined as:
$$
\frac{|p_1 - p_0|}{\sqrt{\frac{p_1(1 - p_1)+p_0(1 - p_0)}{2}}}
$$
where $p_1$ is the proportion of exhibiting cases where the treatment is 1.
If there is a small difference between the means of a covariate split by treatment, then that covariate could be considered balanced. However, I've been asked to use a cutoff of "10%", i.e. covariates are considered balanced if the standardised difference
is less than 0.1. This seems a little odd to me since this will surely be biased; it will be dependent on the size of the mean and therefore is not bounded.
For example, take the normal distribution of mean $1 \times 10^9$, and $1 \times 10^{-18}$, and another with mean $0$ and variance $1 \times 10^{-18}$. The standardised difference
will therefore be:
$$
\frac{1 \times 10^9}{\sqrt{1 \times 10^{-18}}}= 1 \times 10^{18}
$$
In order to compare the differences between this and another covariate (probably with a much smaller mean) to be compared, surely some other normalisation is required...I've not been instructed to standardise/centre my variables so am therefore worried about using this measure.
Do you have any criticism of this? Have I misunderstood this measure? If not, are there more common/appropriate measures to use to assess covariate balance?