Mergers and Spinoffs in Price History

When one company acquires another, or a company spins off a division into its own listing, the acquired or parent ticker's price series doesn't just quietly continue — it stops, and something new appears in its place. If a backtest's price history treats that transition naively, it can manufacture a huge fake "return" or "loss" on the transition date, or silently drop the position and understate what actually happened to a holder's wealth.

In a cash merger, the target's stock disappears and is replaced by a cash payment — a backtest that just deletes the ticker without crediting that cash understates returns. In a stock-for-stock merger, the target's shares convert into acquirer shares at a fixed ratio; failing to carry that ratio forward looks like the position vanished. A spinoff is the mirror image: a parent company distributes shares of a new, separate company to existing holders, so a single position on record date becomes two positions the next day, each trading independently going forward.

For example, say a stock trading at $50 is acquired for $45 cash plus 0.5 shares of the acquirer (worth $20), for a total deal value of $65. A price feed that only shows the target's last quote falling from $50 to nothing would record a false −100% return, when a holder who tracked the deal terms actually received $65 of value — a 30% gain.

Backtests handle this by maintaining a corporate-actions table that links old and new identifiers and specifies the exchange ratio or cash-and-stock terms, then splicing the return series across the event so total-return calculations stay continuous.