## Should I use returns or log returns?

For comparability of the time series data the log returned is preferred in the data analysis. log values effectively captures the compounding effect. the compounding of returns of stocks can be easily understand by assuming the normal distribution.

## What are logarithmic returns?

Logarithmic return is also called the continuously compounded return. This means that the frequency of compounding does not matter, making returns of different assets easier to compare.

What are the advantages of a logarithmic return?

Logarithmic returns are useful for mathematical finance. One of the advantages is that the logarithmic returns are symmetric. While ordinary returns are not, logarithmic returns of equal magnitude but opposite signs will cancel each other out.

Are log returns stationary?

“Simple returns and log-returns…are non-stationary time series. This means that their statistical distributions change over time.”

### Why do we use logarithmic returns?

Logarithmic returns measure the rate of exponential growth. Instead of measuring the percent of price change for each sub-period, we measure the exponent of its natural growth during that time. Later, we can add each sub-period’s exponential growth to get the total growth for the period T.

### Why do we log variables in EViews?

It determines the relationship between one dependent variable and a number of other independent variables.

What is the difference between log return and simple return?

The simple return of a portfolio is the weighted sum of the simple returns of the constituents of the portfolio. The log return for a time period is the sum of the log returns of partitions of the time period.

Are log returns Autocorrelated?

there is no auto-correlation in the log returns series. the auto-correlation values go on decreasing and become smaller and smaller.

#### What is residual log returns?

The residual return is the return relative to beta times the benchmark return. To be exact, an asset’s residual return equals its excess return minus beta times the benchmark excess return.

#### What does a logarithmic scale show?

A logarithmic scale (or log scale) is a way of displaying numerical data over a very wide range of values in a compact way—typically the largest numbers in the data are hundreds or even thousands of times larger than the smallest numbers.

What is log of a variable?

A logarithm is the base of a positive number. For example, the base10 log of 100 is 2, because 102 = 100. So the natural log function and the exponential function (ex) are inverses of each other. Keynote: 0.1 unit change in log(x) is equivalent to 10% increase in X.

Are log returns normally distributed?

Therefore log returns have a normal distribution. That applies to individual assets. The returns of an index — which is the weighted average of a number of assets — has even more reason to be normal.