[R-SIG-Finance] adjustOHLC.R issues

[Joshua Ulrich]

On Mon, Apr 11, 2016 at 8:48 PM, Ernie Stokely <wizardchef at gmail.com> wrote:
> OK, I am prepared for the stones that will be thrown at me for being naive,
> but here goes anyway.
>
> Most of the references on adjusting OHLC values for splits and dividends say
> to use the following adjustment:
>
> K = Ca/C
> Om = K * O
> Hm = K * H
> Lm = K * L
> Cm = K * C = Ca
>
> where: Ca = adjusted close, OHLC are the unadjusted values, and OmHmLmCm are
> the modified (adjusted) values of OHLC.
>
The adjusted close from Yahoo used to only have 2 decimal places, so
what you describe would have been subject to massive loss of accuracy
when there were many adjustments.  That's the entire reason I wrote
TTR::adjRatios and why quantmod::adjustOHLC exists.

That said, they provide more decimal places now, and adjustOHLC
provides a use.Adjusted argument, so you could have used the
adjustments you describe above by calling: adjustOHLC(VTI,
use.Adjusted=TRUE).

> If I use adjustOHLC() in quantmod to do the adjustment I find these are not
> the equations being used. For example, for VTI here is the unadjusted
> OHLCadjC data read from Yahoo:
>
> VTI.Open VTI.High VTI.Low VTI.Close VTI.Volume VTI.Adjusted
> 2006-03-01 128.15 128.90 127.79 128.70 216400 52.56795
> 2006-03-02 128.50 128.76 128.01 128.61 148800 52.53119
> 2006-03-03 128.26 129.43 128.20 128.40 323200 52.44541
> 2006-03-06 128.64 128.64 127.27 127.46 279800 52.06147
> 2006-03-07 127.15 127.31 126.65 126.94 218400 51.84907
> 2006-03-08 126.72 127.49 126.20 127.30 491800 51.99612
>
> If I apply adjustOHLC() to these data I get:
>
> VTI.Open VTI.High VTI.Low VTI.Close VTI.Volume VTI.Adjusted
> 2006-03-01 59.15007 59.49625 58.98391 59.40394 216400 52.56795
> 2006-03-02 59.31162 59.43163 59.08545 59.36240 148800 52.53119
> 2006-03-03 59.20084 59.74088 59.17315 59.26546 323200 52.44541
> 2006-03-06 59.37624 59.37624 58.74389 58.83159 279800 52.06147
> 2006-03-07 58.68851 58.76235 58.45772 58.59158 218400 51.84907
> 2006-03-08 58.49003 58.84544 58.25001 58.75774 491800 51.99612
>
Works fine for me using the latest quantmod and TTR on CRAN:

R> getSymbols("VTI", from="2006-03-01")
[1] "VTI"
R> first(VTI)
           VTI.Open VTI.High VTI.Low VTI.Close VTI.Volume VTI.Adjusted
2006-03-01   128.15    128.9  127.79     128.7     216400     52.56795
R> first(adjustOHLC(VTI))
           VTI.Open VTI.High  VTI.Low VTI.Close VTI.Volume VTI.Adjusted
2006-03-01  52.3433 52.64964 52.19626  52.56795     216400     52.56795

Perhaps you're using an older version of one/both packages?

> Obviously, VTI.Adjusted (Ca) is not equal to VTI.Close (Cm) as required by
> the formula above. I have a colleague who has been trading for 40 years and
> he says this is an erroneous result (that Cm must equal Ca). When I explore
> the package reference file for adjustOHLC() I see this paragraph:
>
> "New columns are derived by taking the ratio of adjusted value to original
> Close, and multiplying by the difference of the respective column and the
> original Close. This is then added to the modified Close column to arrive at
> the remaining ‘adjusted’ Open, High, Low column values."
>
> I am not quite sure how to translate this verbal description into an
> equation, but it doesn't sound like the same correction I see recommended
> elsewhere and described at the beginning of this note.
>
> Can someone shed some light on this discrepancy or send me a link to more
> enlightenment? Thanks in advance.
>
Yahoo describes their adjusted close column here:
https://help.yahoo.com/kb/finance/SLN2311.html

> Ernie
>
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Joshua Ulrich  |  about.me/joshuaulrich
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