21
votes
Accepted
Why and when we should use the log variable?
Based on your paper and variables, I assume you ask about the use in econometric models. There are some rules of thumb for taking logs (do not take them for granted). See for example Wooldrigde: ...
- 8,143
5
votes
Why and when we should use the log variable?
I cite from the fantastic book by Bali, Engle, and Murray (2016): Empirical Asset Pricing: The Cross Section of Stock Returns.
In what follows, they talk about the pricing of size in the stock market (...
- 15.2k
3
votes
Why and when we should use the log variable?
Generally, we model a lot of quantities in finance as exponentially growing variables like stock price in Black Scholes Model or GDP, because these quantities grow continuously every year. Also, we ...
3
votes
Accepted
How to measure the real interest rate using the consumer price index
Real rate = Money Market Rate - CPI
Approximately.
As I do want to be exact (thanks, @noob2): $(1+real)=\frac{1+MMR}{1+CPI}$
- 1,134
3
votes
Target variables in high frequency trading
What you need depend on what you are trying to do (note that the rest of the explanation is very simplified).
If your target is to execute a big order, you can use a short term mid price prediction to ...
- 51
2
votes
Constant maturity futures price methodology
What you are doing in the formula is just linear interpolation. This is probably fine, if there was some hindrance such as a seasonality effect, the market would probably contain a contract at that ...
- 523
1
vote
Accepted
What is the relation between the trend of log and linear in accumulative data?
The answer will depend on the estimation method.
Classical Pearson and Neyman Frequentist statistics are not invariant to the log transformation. The estimator under the logarithmic transform, when ...
- 4,359
1
vote
Accepted
Choosing an exchange rate in a macroeconomic panel data set
Sounds to me like you're looking for something like the USD index, see https://en.m.wikipedia.org/wiki/U.S._Dollar_Index
As for a common exchange rate, sounds to me like you're looking for a "risk" ...
- 1,156
1
vote
basic econometric model on country spread methodology
These are good questions.
1: Yes. Similarly, consider absolute yield level as a regressand.
2: Regress on unemployment absolute AND difference. You can toss out any statistically insignificant (||&...
- 949
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