Abstract
We analyse the relationships between return calculation methods, risk and observation periods. We show that the mean of a return set calculated using logarithmic returns is less than the mean calculated using simple returns by an amount related to the variance of the set. This implies that there is not a onetoone relationship between mean logarithmic and mean simple returns and also that risk and return calculations are not independent as the measure of risk is part of the measure of return. Finally we draw on examples from the extant literature.to illustrate that these effects can be very important particularly when dealing with short observation periods.
Original language  English 

Pages (fromto)  151162 
Number of pages  12 
Journal  International Review of Financial Analysis 
Volume  38 
DOIs  
Publication status  Published  16 Oct 2014 
Keywords
 Stocks
 Logarithmic Returns
 Simple Returns
 Risk
 Return
 Observation Periods
 Intraday Data
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Profiles

Andros Gregoriou
 Brighton Business School  Professor in Finance
 Centre for Change, Entrepreneurship and Innovation Management
Person: Academic