Adjusting Historical Prices for a Rights Issue

Summary

The document gives a dilution-factor method for adjusting historical share prices around a rights issue. It describes an issue in which shareholders receive A rights for every B existing shares, with the rights offered at price C, and uses D for the closing share price before the ex-rights date. The factor is the theoretical ex-rights price, formed as a weighted average of the subscription price and prior close, divided by the prior close: (A·C/(A+B) + B·D/(A+B))/D.

The stated procedure is to multiply all prices before the ex-rights date by this factor. The example uses a one-for-four issue at $18 when the previous close is $20, yielding a factor of 0.98 and an adjusted prior close of $19.60. This explains a standard mechanical adjustment, but the document does not discuss alternative data-provider conventions, fractional entitlements, fees, or market-price deviations from the theoretical ex-rights price.

Key ideas

• A rights issue can be represented by the entitlement ratio, subscription price, and prior closing price.
• The dilution factor is the theoretical ex-rights price divided by the prior close.
• Multiply historical prices before the ex-rights date by the dilution factor.
• The example produces a factor of 0.98 and an adjusted prior close of $19.60.
• The calculation does not account for market deviations from theoretical value or provider-specific conventions.

Tags

# What is the formula for calculating adjusted closing price after a rights issue?


# What is the formula for calculating adjusted closing price after a rights issue?












I know how to calculate adjusted closing prices in case of splits, dividends, etc but I'm not able to figure out how it's done in case of a rights issue.

## Answer by Richard at NorgateData (score 2, accepted)

https://quant.stackexchange.com/a/59064

A typical rights issue is of the form:

A rights for every B shares at a price of C, where the closing price on the day prior to ex-rights date is D.

To calculate a dilution factor from a rights issue: ( ac/(a+b) + bd/(a+b) ) / d

In python code form:

```
# Rights issue - 1 for 4 rights issue at $18 with previous close of $20
a = 1
b = 4
c = 18
d = 20

dilutionfactor = ( a*c/(a+b) + b*d/(a+b) ) / d

# the dilution factor calculated here here is 0.98
```

All prices prior to the ex-rights date need to be multiplied by this factor.

In the above example, this would make the adjusted price on the day prior to the ex-rights date $19.60.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.