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This is my first look at the subject of adjusted vs
unadjusted prices. I assumed a historical starting point of 100 shares
selling at $100 per share. This computes to $10,000.00 starting
capital.
After one split, I calculated a price of $50 per
share,200 shares, $10,000 capital.
After the second split, I got a price of $25 per
share,400 shares,$10,000 capital.
After the third split, I got a price of $12.5 per
share, 800 shares,$10,000 capital.
After the forth split, I got a price of $6.25 per
share, 1,600 shares, and $10,000 capital.
After the fifth split, I got a price of $3.125 per
share, 3,200 shares, and $10,000 capital.
After the sixth split, I got a price of $1.56 per
share, 6,400 shares, and $10,000 capital.
If you carry this forward for a few more splits,
the price will become very
small.
Apparently, calculations using very small prices
are more likely to result in incorrect
results.
Is this the reason that back adjusted prices are
suspect, or are there other reasons?
I would like to hear comments regarding my
conjecture here. Ron D
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
Ken Close
To: <A title=amibroker@xxxxxxxxxxxxxxx
href="">AmiBroker List
Sent: Thursday, September 11, 2003 9:31
AM
Subject: [amibroker] Unusual Happening
with Adjusted Prices
Chuck Rademacher has often mentioned the perils of adjusted
price dataand he keeps unadjusted prices (close price only I think) in
hisextensive database.I came upon something just now that
illuminates his comments.I have a Stochastics RSI indicator from Chas
Richards Headsup file andit
is:Low1=LLV(C,21);High1=HHV(C,21);RSISTO=(EMA(100*(C -
Low1)/(High1 - Low1+0.0001),13)/2) +(RSIa(C,14)/2);I plot this in
IB and do an explore using it and some other factors.Today, TARO
popped up on my explore as a buy, and when I looked at mycollection of
plotted indicators, RSISTO was "Empty" (flat line).After some
detective work, I discovered that back in 1990, the adjustedclose prices
produced a situation where the Low1 = the High1 in theabove equation,
giving it a empty value that never corrected itself.The 0.0001 factor in
the above equation was NOT in my original equation,but will serve to avoid
division by zero.A further explore showed this to be the only stock in
a 1700+ symbolwatchlist, but nonetheless, it might occur on some other
symbol andpoints out the lack of credibility (or lack thereof) of adjusted
pricesthat drop down into the pennies level.Just for your
information.....Ken------------------------ Yahoo! Groups
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