What are the advantages of log returns over simple returns in the context of computing stock...

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What are the advantages of log returns over simple returns in the context of computing stock...

What are the advantages of log returns over simple returns in the context of computing stock market returns?

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Answer 1

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Simple returns are useful when considering multiple Assets over the same time frame. While log-returns useful when considering a single asset over time. So log-returns are preferable for stocks.

The technical analysis required detrending/ normalising the time series data. It can be done easily and more accurately using log returns.

log-returns are good to use in algorithms. Which is crucial for many stock market assessing software.

Log returns have more stable distribution then arithmetic returns.

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Answer 2

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Over the course of a year, the log return on a stock market index is 11.2%....

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