Look-Ahead Bias

AAA

DEFINITION of 'Look-Ahead Bias'

Bias created by the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This will usually lead to inaccurate results in the study or simulation.

INVESTOPEDIA EXPLAINS 'Look-Ahead Bias'

If an investor is backtesting the performance of a trading strategy, it is vital that he or she only uses information that would have been available at the time of the trade. For example, if a trade is simulated based on information that was not available at the time of the trade - such as a quarterly earnings number that was released three months later - it will diminish the accuracy of the trade's true performance.

RELATED TERMS
  1. Instant History Bias

    An inaccuracy in the appearance of investment fund returns that ...
  2. Chartist

    An individual who uses charts or graphs of a security's historical ...
  3. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  4. Forecasting

    The use of historic data to determine the direction of future ...
  5. Backtesting

    The process of testing a trading strategy on prior time periods. ...
  6. Data Mining

    A process used by companies to turn raw data into useful information. ...
Related Articles
  1. Trading Systems & Software

    Four-Week Rule Boosts Winning Trades

    Acquaint yourself with an indicator that played a role in the early development of technical analysis.
  2. Trading Systems & Software

    Backtesting: Interpreting The Past

    We offer some tips on this process that can help refine your current trading strategies.
  3. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  4. Investing Basics

    Explaining Market Value of Equity

    Market value of equity is the total value of all the outstanding stock as measured in the stock market at a particular time.
  5. Investing Basics

    What is Spread?

    Spread has several slightly different meanings depending on the context. Generally, spread refers to the difference between two comparable measures.
  6. Economics

    What is the Breakeven Point?

    In general, when gains or revenue earned equals the money spent to earn the gains or revenue, you’ve hit the breakeven point.
  7. Stock Analysis

    What is the Price-to-Sales Ratio?

    The price-to-sales ratio is an indicator of the value placed on each dollar of a company’s sales or revenues.
  8. Investing Basics

    What is Treasury Stock?

    Treasury stock is a company’s own stock that it holds in its treasury for later use.
  9. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  10. Investing Basics

    What is a Mid-Cap?

    Mid-cap companies are those with a market capitalization between two and $10 billion.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center