Adjusted Close Data for Technical Indicators and Corporate Actions
Summary
The document asks whether stock indicators such as moving averages, MACD, Bollinger Bands, and exponential averages should use adjusted closing prices when shares split or pay dividends. Its example compares a two-day moving average around a reported two-for-one split: the calculation using adjusted closes differs sharply from the value returned by a finance data service using unadjusted closes. This raises the risk that corporate actions can distort historical indicator values if prices are not made comparable.
The answer attributes the discrepancy to a likely data glitch and cautions that free historical data may be imperfect. It suggests checking adjusted data against other sources and ensuring that all observations in a comparison are on a consistent basis, including manual adjustments if needed. The discussion is anecdotal and does not establish the precise cause of the provider's discrepancy or give a universal adjustment procedure. Researchers should verify split and dividend handling in their data before using indicators or returns.
Key ideas
- Corporate actions can make unadjusted historical prices unsuitable for comparing indicator values across dates.
- The example shows a two-day average changing substantially depending on whether adjusted or raw closes are used.
- The response suspects a data glitch but does not establish its cause.
- Price series should be checked for consistent treatment of splits and dividends before technical analysis.
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Full text
# Aren't Technical Indicators calculated on Adjusted Close Price? # Aren't Technical Indicators calculated on Adjusted Close Price? I would assume that day to day movement in stock can be accurately compared with the Adjusted Close Price and not simply the Close Price, taking into account Stock Splits Dividends etc. http://www.investopedia.com/ask/answers/06/adjustedclosingprice.asp Eg: For INFOSYS (INFY, NSE) https://in.finance.yahoo.com/q/hp?s=INFY.NS&a=11&b=12&c=2002&d=11&e=20&f=2014&g=d The 2 day SMA (Simple Moving Average) on 19 Dec 2014 is (1998.65 + 1965.90) / 2 = 1982.275 Which is what Yahoo Finance is giving me. But the 2 Day SMA on 2nd Dec 2014 Should be = (Adj Closing on 1st Dec + Adj Closing on 2nd Dec ) / 2 = (1087.46 + 2126.60)/2 = 1606.73 But it is infact (According to Y! Finance) (Closing on 1st Dec + Closing on 2nd Dec ) / 2 = (2174.93 + 2126.60)/2 = 2150.765 So the 2:1 Split has no effect on the SMA? I have taken the example of 2 Day SMA for easy calculation but my question is for general MACD, Bollinger Bands, EMA etc. Many people seem to point to bugs with Yahoo's implementation. I thought given Yahoo's reputation, I thought this was too far fetched but this almost confirms it Any known bugs with Yahoo Finance adjusted close data ? Still one thing remains, should one adjust for these splits manually then for Technical Indicators? If not wouldn't it cause a skew in the results? ## Answer by vonjd (score 4, accepted) https://quant.stackexchange.com/a/15968 As can be seen from this example from Yahoo!Finance this should not happen (click on "+ The adjusted close"): https://help.yahoo.com/kb/finance/SLN2311.html?impressions=true Another more complete example can be found here: http://luminouslogic.com/how-to-normalize-historical-data-for-splits-dividends-etc.htm So my explanation is that this is a glitch in the data... remember: Yahoo!Finance is free and they sometimes don't have the highest quality! An alternative would be Google Finance but they don't provide adjusted data at all. Yet from these data here it can be seen that it must be a glitch in the Yahoo adjusted data: https://www.google.com/finance/historical?q=NSE%3AINFY&ei=FCmZVPH9OeeqwAPf_IGwBg Another helpful discussion on this issue can be found here: Daily returns using adjusted close To answer the question whether a manual adjustment should be made: You should always make an apples to apples comparison. If that requires manual intervention: so be it.
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