# Calculating log returns using R

I am trying to calculate the log returns of a dataset in R using the usual log differencing method. However, the calculated data is simply a vector of zeroes. I can't see what I'm doing wrong.

Here is the snippet showing what I'm doing

> prices <- data$cl > head(prices) [1] 1108.1 1095.4 1095.4 1102.2 1096.3 1096.7 > > > lrets <- log(lag(prices)) - log(prices) > head(lrets) [1] 0 0 0 0 0 0 > summary(lrets) Min. 1st Qu. Median Mean 3rd Qu. Max. 0 0 0 0 0 0  What am I doing wrong? - lrets <- diff(log(prices)) – Vishal Belsare Feb 6 '12 at 11:55 @VishalBelsare you should add that as an answer. – Louis Marascio Nov 23 '12 at 15:42 add comment ## 3 Answers You are simply doing$log(S_t) - log(S_t) = 0$for all$t$. Instead, try > n <- length(prices); > lrest <- log(prices[-1]/prices[-n])  Should do the trick. - Or the more traditional, fewer characters: diff(log(prices)) which also works when 'prices' is a matrix with times in the rows and assets in the columns. The other lesson is that 'lag' doesn't do what we naively expect it to do. – Patrick Burns Feb 6 '12 at 10:54 To be sure that lag works as you expect, it is much safer to store your time series as zoo or xts objects: if you use vectors (or even ts objects), many operations will discard or ignore the timestamps. – Vincent Zoonekynd Feb 6 '12 at 11:48 hadnt noticed the "diff" function yet. A handy one, indeed. – AdAbsurdum Feb 6 '12 at 12:39 @PatrickBurns: +1 for your input. I preferred your more succinct syntax. Would have accepted that as an answer. – Homunculus Reticulli Feb 6 '12 at 13:06 i have been using diff(log(prices)) for a while, but was starting to doubt as it seems almost noone use it. thanks :) – edouard Jul 26 '12 at 17:35 show 1 more comment I think the easiest method for calculating log returns is ROC from the TTR package: > data(ttrc) > roc <- ROC(ttrc[,"Close"])  http://cran.r-project.org/web/packages/TTR/ - add comment An easy way to perform what you need is do it this way: if your data are daily then : > prices <- data$cl
> log_returns <- diff(log(prices), lag=1)


would provide you with daily log returns, if you change the $lag=1$ to $lag=5$ then you will get weekly moving log returns.

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