Why Adjusted Prices Diverge from Historical Closing Prices
Summary
The document explains that adjusted historical prices incorporate corporate actions that occur after each observation date. Because later dividends and other events are applied cumulatively, older adjusted closes can differ increasingly from the raw closes recorded at the time. An adjusted close therefore represents a retrospectively adjusted series, not the price at which a trade could have been executed on that date.
A dividend example shows an earlier closing price reduced by the dividend amount in the adjusted series. The next session’s opening price need not match that adjusted close, since overnight news and other market forces affect the open. For evaluating a trading strategy or portfolio, the distinction matters: raw prices represent observed trading levels, while adjusted data can account for corporate actions. The document does not prescribe a complete accounting method for positions, so the price series and treatment of dividends should be chosen to match the valuation objective.
Key ideas
- Adjusted prices reflect corporate actions applied retrospectively to historical observations.
- Multiple later corporate actions can make older adjusted closes diverge substantially from raw closes.
- A next-day opening price need not equal a prior adjusted close because market conditions also move prices.
- Use raw prices for observed execution levels and account for corporate actions when valuing portfolio performance.
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Full text
# adjusted close prices on SP500 # adjusted close prices on SP500 When I look at the adjusted close prices of SP500, for example, I notice that the numbers are always significantly below the actual closing. In the explanation of what adjusted prices are, one gets the impression that the Open prices for the stock on the next day that a certain event happens (such as splits or dividend pays) should be equal, or very similar to, the adjusted close price. However, this is never the case. Why is there a systematic discrepancy? Example: ``` Date,Open,High,Low,Close,Volume,Adj Close 2009-09-30,106.36,106.46,104.62,105.59,254383000,97.27 2009-09-29,106.51,107.02,105.78,106.00,133733900,97.65 2009-09-28,104.85,106.55,104.83,106.32,118285800,97.94 2009-09-25,104.78,105.36,104.09,104.45,204059000,96.22 2009-09-24,106.41,106.64,104.55,105.01,228636800,96.73 ``` I'm trying to evaluate a certain automated strategy but this difference is giving me a hard time to know what my position is after a trade is done. I understand that I buy and sell at the raw prices, but it's not clear to me how to properly evaluate the value of the portfolio at a given point in time. Thanks. ## Answer by Louis Marascio (score 1, accepted) https://quant.stackexchange.com/a/9073 Adjusted series are cumulative of all events that happen after the date. Meaning, if you look at the prices on 2009-09-30, the adjusted close represents all corporate actions that happen after this date. This will create a cumulative effect causing adjusted prices farther back in time to deviate more and more from the actual prices observed that day. If you look at a more recent price series and find one that has only had one corporate action you'll see a price series that more accurately reflects what you're expecting. Here is data from IBM showing from Yahoo to demonstrate: ``` Date Open High Low Close Volume Adj Close Aug 8, 2013 189.45 189.87 186.79 187.93 4,547,600 187.93 Aug 7, 2013 189.60 189.93 188.05 188.56 3,901,700 188.56 Aug 7, 2013 0.95 Dividend Aug 6, 2013 192.26 192.51 190.27 190.99 5,938,500 190.04 Aug 5, 2013 195.16 195.88 194.35 195.50 2,490,900 194.53 Aug 2, 2013 195.50 195.50 193.22 195.16 3,874,000 194.19 ``` On `Aug 6, 2013` IBM closed at `190.99`, went ex-dividend for `0.95`, then opened the next day at `189.60`. The Adjusted close for `Aug 6, 2013` was `190.04` representing the actual close `190.99` less the dividend. Note, that the open price on the day after a corporate action does not (and likely won't) be equal to the previous days close net of the adjustment. Other factors such as overnight news will affect the next days open.
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