Choosing Adjusted or Unadjusted Stock Prices for Prediction

Summary

This exchange addresses whether a stock prediction model should use adjusted closing prices or raw closes when its inputs include technical indicators and lagged prices. The answer distinguishes the target being modeled: adjusted prices are appropriate when the goal is to estimate an investor's total return, because they account for distributions such as dividends; unadjusted closes are suitable when predicting the quoted stock price itself.

It also notes that adjusted prices are commonly used for historical return, correlation, and volatility calculations, while actual closes may matter when a security's value is defined strictly by its closing price on a particular date and dividends are irrelevant to the target. The response is concise and gives no empirical comparison of model performance. It does not address how adjustment conventions, corporate actions, or data availability should be handled in a specific forecasting pipeline, so the choice must follow the precise target definition.

Key ideas

• Choose prices according to whether the model predicts quoted price or total return.
• Adjusted closes account for dividend payments and are suited to total-return analysis.
• Unadjusted closes fit targets defined by the actual market close.
• Historical return, correlation, and volatility estimates commonly use adjusted prices.
• The exchange offers a target-definition rule of thumb, not a performance test of forecasting models.

Tags

# Design models using adjusted or unadjusted stock prices (time series prediction)?


# Design models using adjusted or unadjusted stock prices (time series prediction)?












I'm creating a predictive model for closing price of stocks (using neural network and support vector machines.). Is it appropriate to use adjusted prices or unadjusted prices for this prediction purpose? my inputs are technical indicators (+ lags of price) and my output is trend deterministic (1 if we have increase in price and down if we have decrease in price).

## Answer by RandyF (score 1)

https://quant.stackexchange.com/a/24676

Whenever you are looking to estimate total return, you would use adjusted closing prices. If you are strictly looking for the future stock price, you would use unadjusted closing price. I assume, though, that you are looking to predict the value of holding a stock during a given period, so you would want to use adjusted prices. The only time I've used actual closing prices in a model was when a security's value is strictly based on the closing price as of a certain day and ignorant of any dividend payments made. Historical correlation/volatility and estimates of return use adjusted prices.

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