# 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?

• Does that link help you answer your question?
– SRKX
Feb 4, 2013 at 21:11
• 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, 2013 at 21:21

## 3 Answers

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, 2013 at 14:37
• @JoshuaUlrich, Google finance also lists a split in 2006. Surely they can't both be wrong...
– LJW
Feb 6, 2013 at 7:14
• @Marcus Why can't they both be wrong? What if they get their corporate actions from the same source? Feb 6, 2013 at 12:10
• @assylias Hmm, I had to think this one over. Consider four-day market prices of \$102, \$100, then a \$5 dividend and \$96, and finally \$97. If I understand your ratio suggestion, then I adjust the first two prices by 5% to arrive at a time series of \$96.90, \$95, \$96, and \$97, which implies an investor made money by buying on the first day. But this seems wrong because if the investor sells the stock at \$97 after having paid \\$102 for it, he loses the exact amount of his dividend, resulting in a break-even investment. Feb 7, 2013 at 23:03
• @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). Feb 8, 2013 at 7:59

Concerning adjusted price series:

• Free yourself from terminology and definitions, as you can clearly see, Yahoo Finance got it wrong on the stock split you linked to (and as chrisaycock correctly pointed out). You need to focus on the problem not the term people use to describe the problem: You need to adjust time series for the stock split, period. So, it does not matter whether the standard terminology is to use "adjusted price", "split adjusted price", or just "price" (some price adjustment converters in fact backward-adjust and thus the splits are reflected in the pure "price" columns rather than in any "adjusted price" column. (of course here in this example Yahoo is inconsistent which is incorrect).

• The standard (still now) for adjusting price time series for corporate actions is still backward adjustment not forward adjustment. Forward adjustment benefits you if you have past prices locked in for some reason and cannot adjust those but need to preserve the true price changes going forward, however, it suffers from couple other deficiencies in comparison to backward adjustment.

• You need to be extremely careful adjusting prices for dividends. If you are exposed to the discontinuous price differential due to dividend payments but you are not the holder of the stock on the ex-date of the dividend announcement then you will not benefit from any dividend payments but you are still fully exposed to the price adjustment.(I am just making the point here and am not saying this is possible or impossible, what I try is to sharpen your sense of segregating different issues here). Thus, you ought to not adjust the price time series, otherwise you will manipulate your true returns. If you are being paid dividends then yes, you should adjust the price series. For that very reason professionals who really work with historical time series do not adjust time series at all, they keep a special schedule of corporate actions and attach corporate action codes to them and thus they can later adjust price time series on the fly depending on the exact circumstances they find themselves in. Adjusting a price time series for good and storing such data is a very suboptimal exercise imho.

• Good info - thanks. Some useful stuff to keep in mind!
– LJW
Feb 5, 2013 at 14:39
• "Adjusting a price time series for good and storing such data is a very suboptimal exercise imho" - I completely agree. You want the raw unadjusted price 1 day before ex-div date (or any corporate action ex-date) and the price adjusted for the corporate action the next day to calculate your return for the ex-div day. Then proceed to calculate returns on the raw prices until another corporate action comes up. Mar 12, 2014 at 1:53

yahoo only gives the corp actions but no price backwards adjustments for dividends and split adjustments was done wrong