Stock splits can create large historical price changes even though they do not change the value of the company. So, you must adjust all pre-split prices in order to calculate historical returns correctly.

Similarly, you must adjust all pre-dividend prices. Dividends do reduce the company's value by the amount of the dividend payment, but the investor's return isn't affected because they receive the offsetting dividend payment.

In this exercise, you will learn how to use the adjustOHLC() function to adjust raw historical OHLC prices for splits and dividends, so historical returns can be calculated accurately.

Yahoo Finance provides raw prices and a split- and dividend-adjusted close column. The output of adjustOHLC() should match Yahoo's adjusted close column. AAPL data from Yahoo Finance is already loaded in your workspace.

While not necessary to complete this exercise, Yahoo Finance provides an accessible example of the adjusted close calculation, if you're interested in learning more.

When to adjust data

Importing and Managing Financial Data in R

Hands-on interactive exercise