Interpret Logarithmic Values like Mean and Std let's say i have a series of data containing prices

abbracciopj

abbracciopj

Answered question

2022-06-20

Interpret Logarithmic Values like Mean and Std
let's say i have a series of data containing prices on the log scale. How would i interpret a arithmetic mean of 0.55 and a std of 0.69 (both metrics are computed with the log prices).
Is there an intuitive explanation in terms of percentage change or anything similar?

Answer & Explanation

timmeraared

timmeraared

Beginner2022-06-21Added 22 answers

Let x i your observations. Then the (observed) arithmetic mean μ ^ log of the logarithm of those is
i = 1 n log ( x i ) n = log ( i = 1 n x i ) n = log ( i = 1 n x i 1 / n )
which is the logarithm of the (observed) geometric mean of the original values (i.e. exp ( μ ^ log ) is the geometric mean of the x i ).
The (observed) standard deviation of these values is
σ ^ log = i = 1 n ( log ( x i ) μ ^ log ) 2 n 1
but the 2 makes it a bit more difficult to transform the way we transformed μ ^ log above. However, exp ( σ ^ log ) does have an interpretation as a measure of deviation from the (geometric) mean, not in terms of difference but in terms of ratio.
When you have a lot of observations where exactly half of them are −1 and exactly half of them are 1, then the arithmetic mean is 0, and the standard deviation is a little larger than 1 (it tends to 1 as the number of observations grows), which is the observed deviation from the arithmetic mean in all cases.
In exactly the same way, for a long list of observations where exactly half are 1 2 and exactly half are 2, the geometric mean exp ( μ ^ log ) is 1, and the "geometric standard deviation", exp ( σ ^ log ) is a little larger than 2 (and tends to 2 as the number of observations grows), since all the observations deviate from the geometric mean by a factor of 2.
In your case, this means that you have observed a geometric mean of exp ( 0.55 ) 1.73, and a standard multiplicative deviation from that mean of exp ( 0.69 ) 1.99. So what would usually be an interval of "mean plus or minus a standard deviation" now becomes
[ 1.73 / 1.99 , 1.73 1.99 ] = [ 0.87 , 3.46 ]

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