03 April 2016

Why you should use Adjusted closing prices for Analysis

Beginners in analysis often do a basic mistake by considering the closing prices of stocks for analysis instead of Adjusted closing price. In this post I will explain, why you should use Adjusted closing price for any data analysis?
When you download data from internet you will often have a column Adjusted closing price in the file. You can read my post which explains how to download stock prices Method-1 and Method-2.
Closing price: It is the final price at which a security is traded on a selected trading day.

Adjusted closing price: It is a stock's closing price on any selected day of trading that has been amended to include any distributions (dividend) and corporate actions (Split/bonus shares) that occurred at any time prior to the next day's open.

From the above definition you can understand it could be a bias to use closing price for analysis which doesn’t discount the corporate actions or distributions. So it is always recommended to use Adj. Closing price during analysis.