[R-SIG-Finance] use log return or quotient return?
kriskumar at earthlink.net
Fri Nov 17 13:20:17 CET 2006
There are atleast three ways to compute returns take first differences ,
take first differences and scale, take first differences of the log returns
One of the nice aspect of first differences of log is that they include
scaling and all the three are approximately the same(as Gabor points
out) at high-freq over a short period of time. But if you had a lower
freq data over a much longer period of time then it is useful to
investigate the statistical properties of the returns before going one
way or the other.
Gabor Grothendieck wrote:
> It depends on how good the approximation log(1+r) = r is and that
> depends on whether r is sufficiently small or not.
> On 11/13/06, Michael <comtech.usa at gmail.com> wrote:
>> Hi all,
>> Does anybody know which is more commonly used in financial time series --
>> log return or quotient return?
>> Thanks a lot,
> R-SIG-Finance at stat.math.ethz.ch mailing list
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