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.
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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 $19.60.
answered Oct 31, 2020 at 23:34
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$\begingroup$ Thanks for answering. In NSE (Indian stock exchange), the closing price of the day is not the same as the market price (last trader price). In that case I'm assuming we have to use that instead of closing price as D because that way I'm getting much more accurate prices (even though there's still a little difference and I can't figure out know why). $\endgroup$ Nov 1, 2020 at 5:11
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$\begingroup$ From what I can see, there's a separate session on NSE that lasts for 20 minutes after the regular trading session. This session is basically an auction session. Other markets do this too (e.g. ASX, which has a 10 minute single closing price auction). If no trades occur as a result of the auction, then the previous trade is the closing trade. The official closing price is the one used by corporate action providers. $\endgroup$ Nov 1, 2020 at 12:18
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$\begingroup$ Actually in NSE the daily closing price is calculated as the VWAP of the last 30 minutes of the regular session. I'm getting accurate prices using the last traded price with your formula. There's still a small difference but I guess it's close enough. When I use the closing price, the results are way off. $\endgroup$ Nov 1, 2020 at 14:13
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$\begingroup$ The adjujstment calculation is there for you to determine a reasonable model for the rate of return. High levels of volatility around such events makes such adjustments less logical. $\endgroup$ Nov 1, 2020 at 23:27
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$\begingroup$ Regarding NSE, I still stand by the "Closing Session" auction that occurs 15:40-16:00. nseindia.com/products-services/equity-market-timings-holidays - I can't find any reference to 30 min VWAP for equities trading on NSE India. $\endgroup$ Nov 1, 2020 at 23:40