Friday, February 17, 2017 5:51:02 PM
I see your point that you have not seen a trading system that flags a special buy signal because a dividend is going to be paid. And I think the reason is because there is no advantage one way or the other when a dividend is paid. Just like on the morning of Dec 16, SPY paid a dividend of 1.33, so when the stock opened it was 1.33 lower. How can anyone profit from that move? Maybe there is some fancy way to use options to benefit, but I have never seen any discussion on the subject. That might be an interesting subject to investigate.
But if dividend transactions are not taken into effect, a dislocation is created on the day of the dividend. If the system is using TA's and it is close to a sell signal, it is very possible (but probably not likely) that a sell signal could be generated on the day a dividend is paid. I would guess that if I went back and backed using a price curve without dividends included, that I would get exactly the same signals.
So if there was your hypothetical SPA then I would agree there would be no difference. But there actually is a difference between SPY and _SPY; it is not penny for penny. But again, it would be rare if it made a difference in the trading signals, but possible.
Think for a second about a 2:1 split. It is really nothing more than a 100% dividend that is paid in stock rather than cash. Nothing is different. A trader closed the day before with 100 shares worth $100. At the open the next day, the trader now owns 200 shares worth $50 each. But looking at a price chart that doesn't take into account the dividend (stock split) it sure has one hell of a dislocation. Big or small a dividend will cause a dislocation in the price curve if the dividend is not accounted for.
So really I agreed with all you said up to your conclusion, when you said "remove the dividend effect when comparing systems." I don't know why I would want to do that, because dividends are a key part of the result. Since 2000 SPY is up 119%, but _SPY is only up 61%. It would be unfair to compare _SPY to say _IWM, which doesn't pay much of a dividend.
But good discussion.
But if dividend transactions are not taken into effect, a dislocation is created on the day of the dividend. If the system is using TA's and it is close to a sell signal, it is very possible (but probably not likely) that a sell signal could be generated on the day a dividend is paid. I would guess that if I went back and backed using a price curve without dividends included, that I would get exactly the same signals.
So if there was your hypothetical SPA then I would agree there would be no difference. But there actually is a difference between SPY and _SPY; it is not penny for penny. But again, it would be rare if it made a difference in the trading signals, but possible.
Think for a second about a 2:1 split. It is really nothing more than a 100% dividend that is paid in stock rather than cash. Nothing is different. A trader closed the day before with 100 shares worth $100. At the open the next day, the trader now owns 200 shares worth $50 each. But looking at a price chart that doesn't take into account the dividend (stock split) it sure has one hell of a dislocation. Big or small a dividend will cause a dislocation in the price curve if the dividend is not accounted for.
So really I agreed with all you said up to your conclusion, when you said "remove the dividend effect when comparing systems." I don't know why I would want to do that, because dividends are a key part of the result. Since 2000 SPY is up 119%, but _SPY is only up 61%. It would be unfair to compare _SPY to say _IWM, which doesn't pay much of a dividend.
But good discussion.
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