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. Forecasting

    The use of historic data to determine the direction of future ...
  4. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  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 FAQS
  1. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  2. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
  5. How can a company execute a tax-free spin-off?

    The two commonly used methods for doing a tax-free spinoff are either to distribute shares of the spinoff company to existing ... Read Full Answer >>
  6. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
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. Investing

    The Number One Reason Why Most Traders Fail

    We show you the simple tools, availble to everyone, to succeed as an active trader: education, experience, charts, vision, and risk management systems.
  4. Investing

    Is There Still Opportunity in Japanese Stocks?

    Japanese stocks’ strong performance has prompted market watchers to question whether there’s still a case for adding exposure to the Land of the Rising Sun
  5. Credit & Loans

    Why Securities-Based Lending Became A Big Business

    Securities-based lending—using one's investments as collateral to secure a loan—has become big business for brokers and banks. Should we be concerned about its increasing popularity?
  6. Investing News

    The Financial Singularity Will Destroy Your Return

    Given the current and future growth of financial technology, many believe algorithms will soon define what drives market outcomes. With a wealth of big data, algorithms would be able to create ...
  7. Economics

    Do Transport Stocks Signal a U.S. Selloff?

    The Dow Jones Transportation Average index has underperformed the broader DJ Industrials Average, leading some market watchers to speculate a selloff.
  8. Investing Basics

    Explaining Counterparty Risk

    Counterparty risk is the risk that the other party in an agreement will default, or fail to live up to its contractual obligation.
  9. Investing

    What Can A Conference Call Tell About Trends?

    Messages in a company conference call can be easily misconstrued. But there is a way to cut through the talking points to get to the real substance.
  10. Investing

    Successful Investors Don’t Just Set It & Forget It

    The most highly effective investors consistently take steps to adapt their investment plan in the face of changing markets and changing lives.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!