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When a data provider like Yahoo finance says that the closing price is adjusted for splits and dividends, what does that mean? A split will increase/ decrease the price by the split ratio, and a dividend will decrease the price by the amount of the dividend.

So what adjustment are they talking of?

  • Yahoo's historical prices are now effectively worthless for valuing historical portfolio holdings unless one knows what all the splits were from now back to the pricing date and then "un-adjusts" the price. This also obscures what the real price was when trades were made in the past. This is a step backward for Yahoo as a data source. – stockinvestor Dec 4 '17 at 22:03
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[This answer has been updated to reflect changes to Yahoo's historical prices. It is accurate as of 2017/12/15.]

Yahoo adjusts all historical prices to reflect a stock split. For example, ISRG was trading around $1000 prior to 2017/10/06. Then on 2017/10/06, it underwent a 3-for-1 stock split. As you can see, Yahoo's historical prices divided all prices by 3 (both prior to and after 2017/10/06):

enter image description here

For dividends, let's say stock ABC closed at 200 on December 18. Then on December 19, the stock increases in price by $2 but it pays out a $1 dividend. In Yahoo's historical prices for XYZ, you will see that it closed at 200 on Dec 18 and 201 on Dec 19. Yahoo factors in the dividend in the "Adj Close" column for all the previous days. So the Close for Dec 18 would be 200, but the Adj Close would be 199.

For example, on 2017/09/15, SPY paid out a $1.235 dividend. Yahoo's historical prices say that SPY's closing price on 2017/09/14 was 250.09, but the Adj Close is 248.85, which is $1.24 lower. The Adj Close for the previous days was reduced by the dividend amount.

enter image description here

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Should be noted that pacoverflow's answer is wrong. Yahoo back-adjusts all the previous (not current or future) values based on a cumulative adjustment factor. So if there's a dividend ex-date on December 19, Yahoo adjusts all the PREVIOUS (December 18 and prior) prices with a factor which is:

1 - dividend / Dec18Close

  • So can back-adjusted prices go negative? – Acccumulation Dec 5 '17 at 17:19
  • My answer was correct at the time of writing. However, I don't believe your answer is correct. You say it adjusts the previous prices by the formula 1 - dividend/Dec18Close. That means the previous prices cannot be adjusted by more than $1. However, that is not true. Consider SPY, which paid out a $1.235 dividend on 2017/9/15. Yahoo's Adjusted Close for SPY on 2017/9/14 is $1.24 lower than it's Close, which matches the dividend. (And Yahoo's historical prices right now have not been updated with today's price, so it doesn't include the 2017/12/15 dividend.) – pacoverflow Dec 15 '17 at 17:00
  • You're wrong. Division is done first as per elementary math, look at it as 1-(dividend/Dec18Close) if it helps. Using simple subtraction on the latest day of adjustment (9/14) would be roughly correct but not quite. – misantroop Jan 14 '18 at 21:32
  • Dividend can never be more than the price, the formula checks out. Adjustment factor as a percentage of the pre ex-date close is needed as you cannot do a simple subtraction to every value. If the previous days had closing values of $1 and $2 and a dividend of $0.5 would be paid out, the closes would become 0.5 and 1 (dividend is 50% of close), using simple subtraction it would be 0.5 and 1.5, absolute value based adjustment is NOT what you want. – misantroop Jan 14 '18 at 21:40
  • @Acccumulation how can they go negative using that formula? – misantroop Jan 16 '18 at 22:34

protected by Community Jul 7 '18 at 5:52

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