21 votes

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: ...
AKdemy's user avatar
  • 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 (...
Kevin's user avatar
  • 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 ...
Sahil Aggarwal's user avatar
3 votes

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): $(1+real)=\frac{1+MMR}{1+CPI}$
Owe Jessen's user avatar
  • 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 ...
Alex D's user avatar
  • 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 ...
UmaN's user avatar
  • 523
1 vote

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 ...
Dave Harris's user avatar
  • 4,359
1 vote

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" ...
rupweb's user avatar
  • 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 (||&...
rrg's user avatar
  • 949

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