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Hi Chuck,
Boy are we lucky to have you iron out all these data issues. Looking back, before my AB days, I was just a babe lost in the woods. I may still be in the woods, but at least I know which way is North nowadays.
Anyway, the reason I wanted to respond to this particular thread was to ask that as you work with CSI, can you please build this dividend-handling ability into the end-product. I certainly appreciate that it comes down to a better of two evils in terms of how dividends are handled, but knowledge of the adv/disadvantages you've elaborated on in previous posts will allow us to make an informed decision.
Kind Regards and Thanks,
Gary
Chuck Rademacher <chuck_rademacher@xxxxxxxxxx> wrote:
Hi Al,
Not to worry, this is a complex issue.
Yes, the price drops on the day that a stock goes ex-dividend and for "normal" dividends, this is not a problem. When a company floats a piece of itself, the dividend can be substantial. Twenty, thirty, even fifty percent fall in price on a given day.
Now comes the problem of how your data supplier adjusts the price. Some data vendors allow you to specify whether or not you want historical prices to be adjusted for the dividend. Most do not. If your data is not backadjusted to compensate for the dividend, you will see a huge collapse in the price on the ex-date. If your system is in a trade, it will see this price collapse as a loss. Depending on indicators you use, false signals can be triggered. It will appear as a large breakout to the downside, probably triggering stops in your system that should be triggered. This is not good.
However, backadjusting that includes dividend adjustments is not good either. Dividend backadjustments are subtracted from the price (so that P/L figures are correct) and it is possible to end up with negative prices in your historical data. Of course, the stock never really went negative. Just like YHOO or DELL shows backadjusted prices of ten cents or so due to splits, a stock with a large dividend in its past can end up with negative prices several years back.
This thread started when Art asked about what happened to NCRX on the 2nd of December. The price collapsed by $11. It was a cash payout to investors. If you owned the stock, you had $11 cash in your hand and your stock lost $11. No net change. However, Art's data vendor DOES NOT adjust for dividends and cash payouts. So, he sees a huge gap in his chart for NCRX. If I set a flag on my data to adjust for that dividend, the backadjusted price hit a low of $2.06 on the 10th of March, 2003. As you can see, if that cash payout happened to be $14 instead of $11, the historical, backadjusted price on the 10th of March would show a negative value.
I hope this helps. It doesn't get any easier trying to explain it.
-----Original Message-----From: Al Venosa [mailto:advenosa@xxxxxxxxxxxx]Sent: Tuesday, January 06, 2004 4:22 PMTo: amibroker@xxxxxxxxxxxxxxxSubject: Re: [amibroker] dividend (more on the subject)
Chuck:
I haven't followed this thread very closely, so forgive me if I am giving the wrong information or am misunderstanding something. I always thought that when a stock goes ex-dividend, the floor specialist automatically adjusts the price downwards that day to reflect the per-share amount of the dividend. The price could still close up on that day if the supply-demand forces drove it up. So, prices that are downloaded from your data source should already reflect the dividend adjustment, and you should not have to worry about that yourself. Thus, prices cannot possibly go negative. Am I wrong, missing something, or what?
Al Venosa
----- Original Message -----
From: Chuck Rademacher
To: amibroker@xxxxxxxxxxxxxxx
Sent: Tuesday, January 06, 2004 1:12 PM
Subject: RE: [amibroker] dividend (more on the subject)
Hi Dingo,
Yes, prices can go negative as a result of backadjusting for dividends because the dividend is subtracted. Although there is a very logical reason as to why they are subtracted, I simply cannot come up with the reason at the moment. Perhaps Howard or someone else can jump in here and help me out? If I can remember the reason before someone else comes up with it, I'll be back to you.
-----Original Message-----From: dingo [mailto:dingo@xxxxxxxxxxxx]Sent: Tuesday, January 06, 2004 10:01 AMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker] dividend (more on the subject)
I'm a little confused by the "prices can go negative" part. Is this because the dividend is subtracted from the price? Wouldn't a "better" solution be if you did a "percentage" calculation somewhat like a split?
d
-----Original Message-----From: Chuck Rademacher [mailto:chuck_rademacher@xxxxxxxxxx] Sent: Tuesday, January 06, 2004 4:04 AMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker] dividend (more on the subject)
G'day, b...
Another country heard from on the subject of dividends!
IMO, the BIG dividends could be considered to be rare. However, a dividend of 10%, while not BIG, can still affect the P/L and indicator calculations. Sometimes a company will float a division or subsidiary, issuing stock in the new company and reducing the price of the original stock by the same amount. It is not unusual to see 50% falls in price arising from situations like this. I could run some stats for you, if you feel it is important to know that much about the scale of the problem.
I would hope that TJ might think this subject is important enough to give some consideration. In order for that to happen, enough users would have to:
a. understand the problem.
b. believe that it is serious enough that it should be fixed
c. convey that message to TJ.
If TJ was to address the problem, there still is the issue of how the information gets into the database. I hate to bring up CSI again, for fear that users here will soon think that I have some sort of financial interest in the company. I can assure you that I cannot benefit in any way by people subscribing to CSI.
With that (hopefully) out of the way, let me describe how my own trading software works. By the way, my software is not for sale, so there is no potential conflict in tellying you about it.
My database, thanks to CSI, has a record of every dividend and dividend date. This information is available directly from CSI. In fact, with CSI you can backadjust your data to include or exclude dividends. Obviously, the difference is the amount of the dividend. Backadjusting for dividends, however, creates a new problem; prices can go negative when backadjusting over several years. My method of getting around this problem is to backadjust over a moving window that is large enough to properly calculate the indicators being used by the system. Since my database has dividend dates and amounts, I am able to do this backadjusting on the fly. Yes, it slows things down. No, I don't turn the feature "on" during preliminary research of new system(s) and/or parameter(s). I only turn it on in the later stages
of my research in order to get an accurate picture.
I hope that the above helps people to understand the significance of the problem. I don't recall it every being mentioned on this or any other Yahoo board. I can assure you, however, that the subject takes up a lot of my time and effort.
-----Original Message-----From: b [mailto:b519b@xxxxxxxxx]Sent: Tuesday, January 06, 2004 1:59 AMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker] dividend (more on the subject)Chuck,I am convinced. Dividends are bad news. And with recent US tax changes they will notbe going away anytime soon. Are the big dividend payouts rare enough that they can be ignored in practice? I hope the answer is Yes, because I can not see any easy way to compensate (otherthan manually checking all trade candidates for recent dividends - too much tediouswork for my liking.) b--- Chuck Rademacher <chuck_rademacher@xxxxxxxxxx> wrote:> Another reason why I say that dividends are the BIGGEST PROBLEM with data is> that not only did $11 disappear in one day from the stock in question> (causing a
loss), it also severely distorts ALL technical indicators. Such> a move could look like a SERIOUS BREAKOUT when, in fact, it's nothing but a> dividend.> -----Original Message-----> From: indiana0352 [mailto:cs_winn@xxxxxxxxxxx]> Sent: Monday, January 05, 2004 9:34 PM> To: amibroker@xxxxxxxxxxxxxxx> Subject: [amibroker] dividend> > > Does anyone know how I can compensate for large dividend payments> made by companies in the stock prices in AB??> > eh NCRX which paid out a $10.92 cash dividend on Dec 2, shows in AB> as dropping significantly that day when really it didn't.> > The only way I could firgure it out would be to do a reverse> division and calculate a split value which I enter. Is there
an> easier way?> > TIA,> Chris> > > > Send BUG REPORTS to bugs@xxxxxxxxxxxxx> Send SUGGESTIONS to suggest@xxxxxxxxxxxxx> -----------------------------------------> Post AmiQuote-related messages ONLY to: amiquote@xxxxxxxxxxxxxxx> (Web page: http://groups.yahoo.com/group/amiquote/messages/)> --------------------------------------------> Check group FAQ at:> http://groups.yahoo.com/group/amibroker/files/groupfaq.html> > > Yahoo! Groups Sponsor> ADVERTISEMENT>
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