# Splits and Dividends in Price Data

> Adjusted prices remove the jumps caused by splits and dividends so returns are correct. Learn how adjustment factors work, when to use raw prices and common traps.

Source: https://learn.tradelabsai.com/programming/adjusted-prices/  
Track: Programming and Data · Level: Advanced · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Splits and Dividends in Price Data", https://learn.tradelabsai.com/programming/adjusted-prices/

When a company splits its stock 2 for 1, the share price halves overnight, but shareholders lose nothing: they own twice as many shares. When it pays a dividend, the price drops by roughly the dividend amount, but shareholders receive the cash. Raw price charts show these events as sudden drops that are not real losses. Adjusted prices rescale past prices so that the history reflects true investor returns. Using the wrong kind of price is one of the most common causes of misleading backtests.

## Why adjustment is needed

| Event | Raw price effect | Real effect on a shareholder |
|---|---|---|
| 2 for 1 split | Price halves | None; twice as many shares. See [Stock Splits](https://learn.tradelabsai.com/fundamentals/stock-splits/) |
| 1 for 10 reverse split | Price multiplies by 10 | None; one tenth as many shares |
| Cash dividend | Price falls by about the dividend on the ex date | Receives cash. See [Dividends](https://learn.tradelabsai.com/fundamentals/dividends/) |
| Spin off | Price falls by the value of the spun off company | Receives new shares. See [Spin-Offs](https://learn.tradelabsai.com/fundamentals/spin-offs/) |

## How adjustment factors work

Most providers back adjust: they keep the latest prices unchanged and multiply all earlier prices by a factor.

- **Split adjustment:** for a 2 for 1 split, multiply all prices before the split by 0.5.
- **Dividend adjustment:** multiply all prices before the ex date by (1 minus dividend divided by the previous close).

Factors from multiple events are multiplied together.

**Example: Adjusting for a dividend**
A stock closes at $100.00 the day before its ex dividend date and pays a $2.00 dividend. On the ex date it opens near $98. The dividend factor is 1 minus 2 divided by 100, or 0.98. Every earlier price is multiplied by 0.98, so the $100.00 close becomes $98.00 in the adjusted series. An adjusted return calculation now shows no false 2% drop, matching the investor's real position: $98 of stock plus $2 of cash. See [Measuring Returns and CAGR](https://learn.tradelabsai.com/portfolio/measuring-returns-and-cagr/).

## Split adjusted versus fully adjusted

| Series | Adjusted for | Use for |
|---|---|---|
| Raw | Nothing | Checking the actual traded prices, order prices, tick rules |
| Split adjusted | Splits only | Price based rules such as levels, where dividends matter little |
| Fully (total return) adjusted | Splits and dividends | Return calculations, performance comparison, most backtests |

## Traps with adjusted prices

1. **Old prices change:** every new dividend changes all earlier adjusted prices. A backtest rerun later uses slightly different numbers. Storing raw prices plus corporate actions avoids confusion. See [Database Design for Market Data](https://learn.tradelabsai.com/programming/database-design-for-market-data/).
2. **Price levels lose meaning:** a fully adjusted price from ten years ago never actually traded. Rules like "buy below $10" or round number levels must use raw prices.
3. **Very old prices can become tiny:** after many splits and dividends, early adjusted prices can be fractions of a cent, which breaks some calculations.
4. **Volume must be adjusted too:** after a 2 for 1 split, pre split volume should be doubled to stay comparable.
5. **Position sizing:** share counts in a backtest should use raw prices on the trade date to stay realistic.

## Futures: continuous contract adjustment

Futures contracts expire, so long histories splice contracts together. The jump between an expiring and the next contract is not a real return. Back adjusted continuous series remove these gaps, using either a difference (subtract the gap) or a ratio (multiply by the ratio). Difference adjusted series can even turn negative far back in history. See [Continuous Futures and Back-Adjustment](https://learn.tradelabsai.com/futures/continuous-futures/) and [Rolling Futures Contracts](https://learn.tradelabsai.com/futures/rolling-futures-contracts/).

## Best practice

- **Store raw prices** and a corporate actions table.
- **Compute adjustment factors** in your pipeline. See [Data Pipelines and ETL](https://learn.tradelabsai.com/programming/data-pipelines-and-etl/).
- **Use total return prices** for returns and raw prices for price levels and order simulation.
- **Check big jumps** against corporate actions. See [Cleaning Market Data](https://learn.tradelabsai.com/programming/cleaning-market-data/).

## Frequently asked questions

### What is an adjusted closing price?

A historical price modified to account for splits and usually dividends, so that returns calculated from the series reflect what an investor actually earned.

### Should I backtest with adjusted or raw prices?

Use adjusted prices for returns and raw prices for price level rules, share counts and order simulation; a good backtest uses both.

### Why did old prices on my chart change?

New splits or dividends change the adjustment factors applied to all earlier prices in a back adjusted series.

Next, learn how to avoid using information before it existed in [Point-in-Time and Survivorship-Free Data](https://learn.tradelabsai.com/programming/point-in-time-data/).

## Continue learning

- Next lesson: [Point-in-Time and Survivorship-Free Data](https://learn.tradelabsai.com/programming/point-in-time-data/)
- Previous lesson: [Timestamps, Time Zones and Daylight Saving](https://learn.tradelabsai.com/programming/timestamps-and-time-zones/)
- Related: [Timestamps, Time Zones and Daylight Saving](https://learn.tradelabsai.com/programming/timestamps-and-time-zones/): Time zone and timestamp errors silently break backtests. Learn UTC storage, daylight saving traps, exchange sessions, event versus receive time and bar labels.
- Related: [Corporate Actions, Delistings and Rolls in Backtests](https://learn.tradelabsai.com/research/corporate-actions-in-backtests/): Splits, dividends, mergers, spin offs and delistings change prices and holdings. Learn how each affects backtests, how to adjust data and the errors to avoid.
- Related: [Stock Splits](https://learn.tradelabsai.com/fundamentals/stock-splits/): A stock split increases share count and lowers price without changing company value. Learn how splits and reverse splits work, why they happen and the reaction.
- Related: [Dividends](https://learn.tradelabsai.com/fundamentals/dividends/): Dividends are cash payments companies make to shareholders. Learn the key dates, types of dividends, dividend policy, taxes and their effect on prices and options.
- Related: [Continuous Futures and Back-Adjustment](https://learn.tradelabsai.com/futures/continuous-futures/): Continuous futures stitch expiring contracts into one long price series. Learn back adjustment, ratio adjustment, roll rules and why they matter for backtests.
- Related: [Cleaning Market Data](https://learn.tradelabsai.com/programming/cleaning-market-data/): Raw market data contains bad ticks, gaps, duplicates and wrong timestamps. Learn how to detect and fix common data errors without distorting your backtests.