The conversation between human and AI assistant.
Why do people use log returns of stock prices for autoregression?
That makes sense. So, does the use of log returns affect the accuracy of autoregression models compared to using just absolute changes in price?
Yes, it does. Autoregression models that use log returns tend to have better performance in terms of predicting future price changes compared to models that use just absolute price changes. This is because log returns account for the compounding effect of price changes over time.