About aggregate return and close vs adjusted close

[ddtuan99]

Hi, first all of, thank you for sharing your imformative notebooks.

I'm starting to research about stock price and have a question. I would really appreciate your help and time.

In calcular_retornos/agregate_returns.ipynb, you use close price to calculate return. What if a stock split, say 7 for 1 split, occur at the end of the month, then with the formula using close price i get negative return. But actually i don't lose any money because stock split itseft doesn't change the value of stock. Although it does change the price, the total share i have now is increase proportionately to the rate each share's price decrease, so the total money is still the same.

What do you think about that? Am i right or i missing something?

Looking forward your opinion. Many thanks!

[asdf8601]

Hi @ddtuan99 thank you for your interest!

That's a good question. I'm not well familiarized with stocks but the point is the difference between the rate of return per unit which is shown in the notebooks and the rate of return on a portfolio. it looks like you want to calculate the portfolio return which use the price and the quantity of the assets.

If you are using this frame, I think you are right. If the shares are increased by a stock split, then the stock price should decrease in order to maintain the capital market of the company invariant.

This is very interesting because it's true that the return is negative, but the portfolio return (as you said) should be the same and actually it is. Notice the diference between return of a portfolio which implies any quantity and the return shown in the notebooks which implies a quantity equal to 1.

So, if you take the returns of the notebooks you has the return of each unit of asset and assumes no changes in the quantity, so to deal with this issue you will need to convert the price and quantity into money, here is an example:

Let me know if I understand correctly your question or if there is something wrong. I hope this helps.

Reference:

• https://www.investopedia.com/ask/answers/what-stock-split-why-do-stocks-split/
• https://en.wikipedia.org/wiki/Rate_of_return
• https://en.wikipedia.org/wiki/Rate_of_return_on_a_portfolio