@MortenTrader The comment price x volume should remain the same isn’t exactly true.
volume * price = adjusted volume * adjusted price should be applicable whatever the cause of the price adjustment”
While we typically think of adjusted data as adjustments to general historical data, those exact same adjustments can be made to ones individual holdings. In fact it’s adjusting ones actual holdings where the need for separate price and volume adjustments becomes apparent.
Consider how holdings look with 3 different ‘adjustment scenarios’ - a stock split, a stock dividend, and a cash dividend.
In the case of a stock split, the company issues more shares (eg 2x in the case of a 2:1 split). In order to not make it look like the shareholder just increased percent ownership of the company (because their shares held just doubled), their previous holdings are multiplied by 2. Therefore the ‘equivalent’ or ‘adjusted’ shares before the split would be 2x their current holdings. The adjusted price would be 1/2 the current price so their ‘net equity’ would remain the same.
net_equity = (price x n) x (shares x 1/n) = price x shares.
A similar thing happens with a stock dividend. The company floats more shares with the dividend, but in order for it not to look like the shareholder increased their percent ownership of the company, their previous holdings are increased by a factor. The price is adjusted down by a proportional amount so, again, the ‘net equity’ remains the same.
In both these instances
volume * price = adjusted volume * adjusted price because the shareholders ‘net equity’ remains the same.
Now consider a cash dividend. The company doesn’t float any more shares. The shareholder doesn’t see any change in their shares held, but they do see a change in their ‘net equity’ because they now have cash they didn’t have before. The price of their shares before the dividend is adjusted down by some amount to reflect that increase in equity. The quantity of their shares however is not adjusted. If one were to adjust the quantity of shares, since the company didn’t change the shares outstanding, it would imply their percent ownership somehow changed. Therefore, share volumes are not adjusted by a cash dividend.
In this instance
volume * price != adjusted volume * adjusted price . This also makes sense since, different from the previous two instances, shareholder ‘net equity’ did increase. If
volume * price = adjusted volume * adjusted price it would imply there was no change to shareholder ‘net equity’ which is clearly wrong because the shareholder is monetarily better off after a cash dividend (unlike after a stock split).
Does that make sense?