26 May 2012

FAQ: Why and when do stock prices get automatically adjusted?

Have you ever wondered why stock prices get automatically adjusted?

I get asked this question many times before so I figured its best to share this information on this site.

In general, stock prices are automatically adjusted for rights issue, bonus issue, share consolidation and share split. The stock prices are adjusted retrospectively, which means that all historical stock prices before the ex date is adjusted.

As for the case of regular dividends, previous stock prices on the historical chart will not be adjusted, instead, the stock price will automatically adjust upward to the amount of dividends per share when declared. As soon as the stocks reaches its “Ex” date, the stock price automatically drops by the same amount it increased earlier on.

In contrast, special dividends warrant a historical price adjustment because it is ought to be one-off and non-recurring.

Take note that the above only applies to the Malaysia stock exchange or Bursa Malaysia. It may not be applicable to other stock exchanges elsewhere in the World.


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