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.
