Adjusted and unadjusted prices

In simple terms

When a company splits its shares or issues bonus shares, every shareholder gets more shares, and the share price falls in proportion. Nobody gains or loses, as the corporate actions lesson explains. But a chart of raw prices shows a sudden drop on the day of the change, as if the share had crashed.

Adjusted prices fix this by rescaling all earlier prices to match the new share count, so the history is continuous and comparable.

How adjustment works

The adjustment factor is the ratio of shares after to shares before:

Earlier prices are divided by the factor; earlier volumes are multiplied by it, so that volume is measured in today's shares.

Rights issues at a discount to the market price also call for an adjustment, though a smaller one, because part of the price drop reflects new money coming into the company.

Dividends

When a share goes ex-dividend, its price usually falls by roughly the dividend, because buyers from that day no longer receive it. For small dividends this barely shows on a chart, but large special dividends can create noticeable drops.

Data providers handle dividends in two ways:

• Price-adjusted data often adjusts only for splits and bonuses, so the price chart reflects capital gains only.
• Total-return data assumes dividends are reinvested and adjusts past prices accordingly. It shows the full return an investor would have earned, as the total return lesson explains.

Check which kind of data your charting tool or data source uses.

Why it matters for analysis

Unadjusted data creates false signals:

• Indicators: a moving average or RSI calculated across a split will show a crash that never happened.
• Patterns: a split can look like a breakdown below support.
• Backtests: a strategy may appear to "sell" at the drop or profit from a fake recovery. The backtesting lesson builds on this.
• Long-term returns: comparing a share's price today with its raw price years ago, across splits and bonuses, understates the gain enormously.

When unadjusted prices matter

Unadjusted prices show what actually traded on each day. They are needed when you want to know the exact price an investor paid on a given date, for tax records or contract notes, or when checking what a news report from that time described.

Why it matters

Splits and bonus issues are common in Indian markets. An investor or analyst who does not know whether a chart is adjusted can draw completely wrong conclusions: seeing a crash that never happened, or calculating returns that are far too low. Knowing which data you are looking at is a basic but essential habit.

Limitations

Different data providers adjust in slightly different ways, especially for rights issues and dividends, so the same history can differ between sources. Adjusted prices are not prices anyone actually paid. Very old data may contain errors or missing adjustments.

Common mistakes

• Reading a split or bonus as a crash.
• Running indicators or backtests on unadjusted data.
• Mixing adjusted prices with unadjusted volumes.
• Assuming all charting tools adjust for dividends.

Try it yourself

1. Find a listed company that has had a split or bonus issue in the last few years, using its announcements on the exchange website.
2. Note the ratio and calculate the adjustment factor.
3. Compare the closing price just before the event with the price shown for that date on an adjusted chart.
4. Check whether your charting tool adjusts for dividends, and how it says so.