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Thanks for the information and clarification.
I usually use mental stops rather than broker stops so I did not realize the latter
are adjusted in an automatic manner.
--- quanttrader714 <quanttrader714@xxxxxxxxx> wrote:
> b,
>
> Did you see my post to Chuck? The dividend yield numbers that I cited
> were *per annum*. Not to mention that if you have an actual trade on,
> you'll *never* be stopped out due to a dividend adjustment because (in
> the U.S. at least) your stops will be *automatically* adjusted. In my
> trading, this "issue" has been a non-issue.
>
> --- In amibroker@xxxxxxxxxxxxxxx, b <b519b@xxxx> wrote:
> > --- Chuck Rademacher <chuck_rademacher@xxxx> wrote:
> > > As I mentioned in one of my earlier posts, there aren't enough AB
> users who
> > > appreciate the problem and are prepared to do the work to
> eliminate it.
> >
> > Conclusion:
> >
> > Perhaps it is based on my own limited experience, but I am more
> concerned about
> > removing bias caused by survivorship (ignoring inactives) and by
> splits (using
> > adjusted prices in filters and ranking formulas).
> >
> > My (untested) hypothesis is that, in most cases, including/excluding
> dividends may
> > make a difference, but not enough of one to make a good system look
> bad (or a bad
> > system look good). It might, however, affect results enough to lead
> one to pick a
> > good system over a better system.
> >
> > Thus, ideally, one would like to use data that includes dividends. I
> will explore
> > what form that data might take in another post.
> >
> > Detailed Reasoning:
> >
> > What follows is a bit of thinking out loud to clarify my own
> understanding. It might
> > also help others get a handle on the issue. Here is my expanded list
> of possible
> > problems that might arise for long (and short) systems using data
> that ignores
> > dividends:
> >
> > 1. Entry problems for long systems: if the system buys beaten down
> stocks, a large
> > 30% to 50% dividend could drop the price enough to get a false buy
> signal. Probable
> > result: likely only a loss of opprotunity (could have had money in
> another stock)
> > since the stock is no more likely to drop further than it is to rise.
> >
> > 2. Exit problems for long systems: a large dividend and the
> resulting price drop
> > would likely trigger an early exit. Probable result: an early exit
> with a profit,
> > and perhaps an opportunity cost if the stock goes up after the
> dividend payout.
> >
> > 3. Exit problems for long systems: a medium dividend (%2-4%) might
> also trigger stop
> > loss exits but only if the stock had been doing poorly to begin with
> (or if the
> > system uses very tight stops). Probable result: loss or opportunity
> and the
> > slippage/commission cost to enter a new trade to replace the stopped
> out one.
> >
> > 4. Profit calculations for long systems: Ignoring dividends would
> either not affect
> > profit calculations (if there were no dividends during the holding
> period) or would
> > underestimate profits (because adding the dividends in would
> increase the gain).
> >
> > 5. Profit calculations for long systems with multi-year holding
> periods (not likely
> > many such investors are reading this board) which happen to mainly
> pick dividend
> > stocks might so underestimate returns that the system would be
> discarded when it
> > might have been kept if the data had included dividends.
> >
> > 6. Short systems might have bigger problems with dividends: Ignoring
> dividends in
> > testing could underestimate profits since any price drops related to
> dividend
> > payments would be illusionary. Also a short system that enters on
> downside breakouts
> > could get, form time to time, a false entry signal.
> >
> > b
> >
> > __________________________________
> > Do you Yahoo!?
> > Yahoo! Hotjobs: Enter the "Signing Bonus" Sweepstakes
> > http://hotjobs.sweepstakes.yahoo.com/signingbonus
>
>
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