Why exactly do we generally take log returns of share prices for instance rather than the actual value of the return?

Not sure you understand what is going on. We take the log of the ratio of asset price at two time points as the return.

Why this and not p2/p1 - 1? I usually respond with "because log-returns are additive", but why should a non-mathematician care?

Student forum?

BionicTurtle

QuoteOriginally posted by: katastrofaWhy this and not p2/p1 - 1? I usually respond with "because log-returns are additive", but why should a non-mathematician care?There's a few of "intuitive" ways to look at it:1. Log returns are symmetric for losses and gains whilst with the p2/p1 - 1, a 50% loss requires a 100% gain to break-even.2. The sum of the log returns on each day of the week is the log return for the week.3. The sum of the log returns for a series of losses will never make prices negative4. Mathematicians are simple folk who prefer addition.

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: katastrofaWhy this and not p2/p1 - 1? I usually respond with "because log-returns are additive", but why should a non-mathematician care?There's a few of "intuitive" ways to look at it:1. Log returns are symmetric for losses and gains whilst with the p2/p1 - 1, a 50% loss requires a 100% gain to break-even.2. The sum of the log returns on each day of the week is the log return for the week.3. The sum of the log returns for a series of losses will never make prices negative4. Mathematicians are simple folk who prefer addition. 1. Symmetry is overrated2. the product of simple return (p2/p1-1) for each day of the week is the weekly return3. the product of simple return for a series of losses will never make a price negative4. mathematicians are simple folk who prefer addition.

QuoteOriginally posted by: daveangelQuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: katastrofaWhy this and not p2/p1 - 1? I usually respond with "because log-returns are additive", but why should a non-mathematician care?There's a few of "intuitive" ways to look at it:1. Log returns are symmetric for losses and gains whilst with the p2/p1 - 1, a 50% loss requires a 100% gain to break-even.2. The sum of the log returns on each day of the week is the log return for the week.3. The sum of the log returns for a series of losses will never make prices negative4. Mathematicians are simple folk who prefer addition. 1. Symmetry is overrated2. the product of simple return (p2/p1-1) for each day of the week is the weekly return3. the product of simple return for a series of losses will never make a price negative4. mathematicians are simple folk who prefer addition.LOL!How about we do the multiplication with a slide rule. That way everyone is happy!

QuoteOriginally posted by: daveangelQuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: katastrofaWhy this and not p2/p1 - 1? I usually respond with "because log-returns are additive", but why should a non-mathematician care?There's a few of "intuitive" ways to look at it:1. Log returns are symmetric for losses and gains whilst with the p2/p1 - 1, a 50% loss requires a 100% gain to break-even.2. The sum of the log returns on each day of the week is the log return for the week.3. The sum of the log returns for a series of losses will never make prices negative4. Mathematicians are simple folk who prefer addition. 1. Symmetry is overrated2. the product of simple return (p2/p1-1) for each day of the week is the weekly return3. the product of simple return for a series of losses will never make a price negative4. mathematicians are simple folk who prefer addition.eh. this isn't true. If I make 10% on Mon and 10% on Tue, I haven't made 1% overall.% returns are confusing.

QuoteOriginally posted by: chewwyQuoteOriginally posted by: daveangelQuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: katastrofaWhy this and not p2/p1 - 1? I usually respond with "because log-returns are additive", but why should a non-mathematician care?There's a few of "intuitive" ways to look at it:1. Log returns are symmetric for losses and gains whilst with the p2/p1 - 1, a 50% loss requires a 100% gain to break-even.2. The sum of the log returns on each day of the week is the log return for the week.3. The sum of the log returns for a series of losses will never make prices negative4. Mathematicians are simple folk who prefer addition. 1. Symmetry is overrated2. the product of simple return (p2/p1-1) for each day of the week is the weekly return3. the product of simple return for a series of losses will never make a price negative4. mathematicians are simple folk who prefer addition.eh. this isn't true. If I make 10% on Mon and 10% on Tue, I haven't made 1% overall.% returns are confusing.of course it isn't true - but the return for n periods is the same as the product of 1 + the individual period returns minus 1 i.e.[$] r_n = \prod_1 ^n (1+r_i) - 1[$]