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Basically, prices usually have a unit root, while returns can be assumed to be stationary. This is also called order of integration, a unit root means integrated of order 1, I(1), while stationary is order 0, I(0). Time series that are stationary have a lot of convenient properties for analysis. When a time series is non-stationary, then that means the ...


Perhaps overly simplistic and repeating the pt above, but when doing statistics, ideally we want to compare like with like. Returns can be comparable with each other. Prices on the other hand always depend on the previous price.


Just a bit of illustration added to @John's answer. Look at log prices $\log(P_t)$, assume that you know $P_0$ then $$ \log(P_t) = \log(P_0) + r_1 + \cdots r_t $$ where $r_i = \log(P_i)-\log(P_{i-1})$ are the log returns. By modelling the log-returns (which as already said take values on the whole real line which is a nice property for modelling) we model ...

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