Avoiding Dividend Double Counting with Adjusted Close Prices

Summary

The document raises a backtesting accounting question: when using adjusted close prices, should cash dividends also be credited separately to portfolio cash? The author understands that adjusted prices incorporate dividends but is unsure how that treatment works and asks for an explanation. No response or supporting reference is included.

The practical concern is avoiding inconsistent return accounting. A price series adjusted for distributions generally represents dividend-reinvested total returns; adding the same dividend payment again as cash can count it twice. By contrast, a portfolio simulation that tracks actual cash flows may use unadjusted market prices and credit dividends separately. The correct setup depends on the data provider’s adjustment convention and the portfolio accounting model. Since the source contains only the question, it does not specify either convention or demonstrate the result, so users must verify how their price data treats dividends before combining it with cash balances.

Key ideas

• Adjusted price series may already reflect dividend distributions in measured returns.
• Crediting dividends to cash while using dividend-adjusted prices can double count the distribution.
• Backtests should align the price convention with their portfolio cash-flow accounting.
• The document asks the question but does not provide an answer or identify a data provider’s adjustment method.

Tags

# Should we add dividends as a cash to the portfolio cash when using the adjusted close price?


# Should we add dividends as a cash to the portfolio cash when using the adjusted close price?












I am backtesting some strategy and using the adjusted close price.

I wonder if I need to take into consideration the dividends paid in cash. Should I add them into portfolio cash or not ?

As far as I understand the adjusted price already incorporates the dividends as well and there is no need to add separately to cash. But I am not sure logic behind.

Could anyone direct me to a resource that might explain the logic behind ?

Thank you

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