why use log prices?

Discussion in 'Trading' started by ivan5424, Nov 2, 2006.

  1. ivan5424


    Does anyone know why it is standard to use the log of the ratio instead of just the ratio of prices when you try to test if the spread is mean reverting?
  2. Using log-scale will tend to smooth out spikes in the data. It can also give a better indication of when momentum slows down and a reversal is likely. Use both measures if it makes you feel more comfortable.