# Daily returns using adjusted close

I want to chart the daily returns of a stock, and I'm using Yahoo finance data to download historic data. I was told to use Adjusted Close, but there seems to be an issue with this.

For ANTO.L, you can see that on 19 Jun 2006 there was a 5:1 split. The adjusted close reflected this, and went from 71.97 to 365.36. This of course skews my daily returns, as it represents a 400%+ return!

Should I be using adjusted close to calculate returns? It makes sense when considering dividends, but whenever there is a stock split there is then a huge skew. Is there something else I'm missing that I need to look into?

EDIT:

I think there's lots of examples of the same bad calculations. SRP.L shows the same for example. Problem is the Close is wrong, and the AdjClose is wrong, so I can't trust anything. Can anyone point me towards a good reliable free (or reasonably priced) provider of historic stock data, so I can use for comparisons?

• I read that, and I think I understand it, but it still doesn't clear it up for me. His last paragraph says to use AdjClose for daily return calculations to avoid unrealistic gaps, but as outlined above, that's exactly what I am getting! A 400% return screams BUY when in fact its not. – LJW Feb 4 '13 at 21:21

Hmm, this table looks wrong. Here's what it should look like. After the most recent corporate action, the Close and Adjusted Close should be the same; only prices from before the most recent action should have a different Adjusted Close. Here's another example. I think Yahoo just has the wrong information.

If you wanted to derive your own adjustments for calculating returns, you'll need to know the date and nature of every corporate action. Then you'll fake the prices of the future rather than the prices of the past. Ie, you'll add back dividends and undo splits going forward. This is the opposite of what Yahoo is doing in their table; the reason for adjusting closes in the future is to prevent negative prices, which can happen if you subtract dividends from the values in the past. Once you have the adjusted prices, you can compute your returns without worry.

• Thanks, makes sense - and is nice to know my understanding isn't fundamentally wrong! It's as if they split the AdjClose instead of the Close, but even that doesn't fully explain it. There doesn't seem to be any easy way of getting details of all corp actions from a reliable provider, so I guess I'll have to keep an eye out for such anomalies! – LJW Feb 5 '13 at 14:37
• @Marcus I'm not sure what Yahoo did in this case that screwed it up so badly. I guess you get what you pay for here. I get my corporate actions from Bloomberg now and used to get them from vendors like S&P and MSCI. – chrisaycock Feb 5 '13 at 14:39
• @JoshuaUlrich, Google finance also lists a split in 2006. Surely they can't both be wrong... – LJW Feb 6 '13 at 7:14
• @Marcus Why can't they both be wrong? What if they get their corporate actions from the same source? – chrisaycock Feb 6 '13 at 12:10
• @chrisaycock you make the assumption that he keeps the div in cash. If you assume that he reinvests it the result is in line with the ratio methodology. So with the ratio calculation you get a total return history (ie with divs reinvested). – assylias Feb 8 '13 at 7:59