Corporate action

An event set off by a company that changes its shares or what holders receive: dividends, bonus issues, splits, rights issues, buybacks, mergers and demergers. Each comes with a record date that decides who is entitled.

Corporate actions break price histories. A 1:1 bonus doubles the share count and halves the price. Unless a chart or a return series is adjusted, it shows a 50% crash that never happened. Data services adjust past prices by a factor, here 0.5, and every earlier per-share figure has to be adjusted the same way. That includes earnings per share and dividends.

Build a backtest on unadjusted prices and you'll find spectacular signals around bonus and split dates. They're artefacts of the data.

Check the adjustment factor before trusting any long series.