Understand the restoration of rights in one article - non-restoration of rights, former restoration of rights, and subsequent restoration of rights

Introduction

1. What is reinstatement?

Stock prices may change abnormally due to the company's dividends, bonuses, splits, mergers, etc., but the actual value of the corresponding company's assets will not change. Restoration is to restore the stock price and trading volume, draw a stock price trend chart according to the actual rise and fall of the stock, and adjust the trading volume to the same equity caliber. Restoration of rights can eliminate the distortion of price trends caused by ex-rights and dividends and maintain the continuity of stock price trends. It just so happens that Tesla (TSLA) split 3 for 1 on August 25, 2022. Let’s take Tesla, run by Musk, the world’s richest man, as an example.

2. What is non-reinstatement of rights?

When the stock price changes due to reasons such as dividends and stock splits, if the huge gap on the stock price chart is not filled and the stock history and the trading price of the day are maintained, the rights will not be reinstated. The picture below is a k-line chart displayed in a non-rightsing mode. From the picture below, it can be seen that the k-line of Tesla's stock price fell directly off a cliff on August 25, 2022.

The non-rightsing K-line chart can truly reflect the historical changes in stock prices. The disadvantage is that it will leave a large gap, making it impossible to apply various technical indicators.

3. What is former reinstatement?

Keeping the current stock price unchanged, adjusting the historical stock price based on the current stock price, and adjusting the stock price changes caused by dividends and stock splits in proportion to maintain the continuity of the stock price trend is pre-right restoration. Take Tesla's stock split as an example. Before the stock split, each share was about 900 US dollars. After 1 share was split into 3 shares, each share became 300 US dollars. Then the pre-right restoration is to divide the stock price before the stock split by 3. The picture below is the K-line chart of Tesla's stock price shown in the previous restoration method.

The current price before the reright is the latest actual transaction price, and the trend of the K-line moving average is continuous, which is more in line with investors' trading habits and suitable for manual trading.

4. What is post-reinstatement?

Post-rights restoration is to keep the historical stock price unchanged, adjust subsequent stock prices based on the stock price on the first day of listing, and make corresponding proportional adjustments to stock price changes caused by dividends and stock splits to maintain the continuity of stock price trends. The picture below is a k-line chart of Tesla's stock price showing the future restoration method. It can be seen that the stock split has no impact on the subsequent restoration method.

Through the post-resumption of rights, we can see the cumulative increase since the stock was listed, that is, the stock price increase after buying it when it was listed and participating in all distributions and dividends until the current stock price increase. However, this will cause the current stock price to display other than the actual transaction price, which is not in line with investors' trading habits and may affect short-term investment behavior.

How to calculate the restoration price

$$The\; closing\; price\; of\; the\; review\; before\; a\; certain\; day=\frac{Doomsday\; closing}{doomsday\; restoration\; factor}\ast Restoration\; factor\; on\; a\; certain\; day$$

$$Closing\; price\; after\; a\; certain\; day=\frac{Closing}{First\; day\; restoration\; factor}\ast Restoration\; factor\; on\; a\; certain\; day$$

It can be seen from the formula that as long as the restoration factor is calculated, whether it is the pre-restoration price or the post-restoration price, it is very easy to calculate.

So what is the reweighting factor? The re-right factor can be understood as the proportion of the daily value change after buying 1 unit of a stock when it was first issued. The rise and fall of the re-righting factor is consistent with the rise and fall of the stock price: re-righting factor = (1 + rise or fall) × re-righting factor of the previous trading day

There are many algorithms for reweighting factors. BaoStock uses the rise and fall reweighting algorithm. Follow the public account and reply "Restoration Factor" to get BaoStock's introduction article on the restoration factor

Conclusion & Communication

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