I've noticed that when many stocks split, their prices don't drop on charts as you'd expect them to. Do the numbers people fudge with the y-axis on the graph so people dont overreact when they see a 50% drop on a chart? If yes, how do they do this?
Just curious....
2006-06-10 05:45:38 · 8 answers · asked by Brain Fart 3 in Business & Finance ➔ Investing
The price history for the stock is adjusted for the amount of the split.
So if it's a 2 for 1 stock split, the price would be adjusted by half not JUST FOR TODAY'S stock price, but for all the prices going back in time.
It has no effect on the value of the stock.
2006-06-10 05:49:09 · answer #1 · answered by Michael 1 · 0⤊ 0⤋
The post split prices are split adjusted.
Imagine how misleading it would be to look at a chart after a split if you didn't know about the split. You would think the REAL value of the stock had dropped. The chart would worse than worthless in that case it would be misleading.
2006-06-10 16:32:22 · answer #2 · answered by Oh Boy! 5 · 0⤊ 0⤋
To understand this, you need to think of stocks as commodities, as products that are being traded in a market. If it helps you comprehend, think of how stocks were traded a hundred years ago--people would physically go to the trading floor and swap pieces of paper (stock certificates) that represented the stock they were trading. When a company has its initial public offering, the first few stocks that are purchased are bought directly from the company, and they use the profit to fund research or development or expansion or whatever they want to use it for. But once the stock is issued, its existence becomes somewhat independent of the company. It's now a commodity, a product, that someone owns, and the company won't make money off any further trades involving a particular stock. So, suppose you bought a stock in Coolcat Company. This stock represents your ownership in the company. You might get to vote on the election of members to the board of directors, and the company may pay you a dividend of their profits according to the number of stocks you own. If this company is doing very well, other people will be interested in owning part of it, so they'll be willing to pay more for the stock. If the company's doing poorly, nobody will want to touch their stock because nobody wants to be partial owner of a company that's not making any money. So at the most basic level, the law of supply and demand dictates the price of Coolcat Company's stock. If the company is doing phenomenally, lots of people will want a piece of it, so because of the limited number of stocks they'll be willing to dish out some money. So, one important point to get from this is that a company doesn't have control over their stock price. Nobody really "calculates" it according to a formula. On the physical floor of the New York Stock Exchange, for example, your brokerage firm would sell your stock to the buyer on the floor who's willing to pay the most. It's up to the buyer how much he's willing to pay. The official "price of a stock" is simply the last value at which that stock was traded in the exchange. Now, these trades occur all the time, constantly. They're going on right now. Because they occur so often and involve different buyers and sellers each time each with different ideas about how much a stock is worth, stock prices are very volatile and jumpy. But if everyone generally agrees about the value of a company, the stock will tend to increase in the limit, even if it might jump around a bit on the way up. I hope this clears up the matter a bit for you. :D
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2016-04-13 23:09:07 · answer #3 · answered by ? 4 · 0⤊ 0⤋
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2014-10-03 18:39:10 · answer #4 · answered by Concordia 1 · 0⤊ 0⤋
The charts are split adjusted.
2006-06-10 05:48:58 · answer #5 · answered by parshooter 5 · 0⤊ 0⤋
1
2017-03-01 03:46:41 · answer #6 · answered by Trinsely 3 · 0⤊ 0⤋
The purpose of adjusting the graph is not to prevent overreaction.
With the adjustment, people can see graphically what happened to the total market value of what they own.
2006-06-10 06:17:57 · answer #7 · answered by hunter 4 · 0⤊ 0⤋
they do drop, but it takes some time to reflect it the charts
2006-06-10 05:48:03 · answer #8 · answered by paulie 3 · 0⤊ 0⤋