Look-Ahead Bias

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.

BREAKING DOWN '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. Backtesting

    The process of testing a trading strategy on prior time periods. ...
  2. Bias

    Biases are human tendencies that lead us to follow a particular ...
  3. Survival Analysis

    A branch of statistics which studies the amount of time that ...
  4. Material Insider Information

    Material information, about certain aspects of a company, that ...
  5. Instant History Bias

    An inaccuracy in the appearance of investment fund returns that ...
  6. Furnisher

    A company that provides information about a consumer, including ...
Related Articles
  1. Active Trading Fundamentals

    Stimulate Your Skills With Simulated Trading

    Think you can beat the Street? We'll show you how to test your abilities without losing your shirt.
  2. Investing

    Disadvantages Of Stock Simulators

    Stock simulators enable one to practice trading, but they have some disadvantages that you should be aware of, before transitioning to actual trading.
  3. Investing Basics

    Stock Market Simulators: Play Your Way To Profits

    Online stock simulators make learning about stocks as fun and easy as playing a game.
  4. Professionals

    Sampling Considerations

    CFA Level 1 - Sampling Considerations
  5. Trading Strategies

    Simulator How-To Guide: Introduction

    Investing in the stock market can be an intimidating and complex task for many new investors. Investing brings a considerable amount of rewards, as well as risks. So, before putting your hard-earned ...
  6. Professionals

    The Key To CFP Exam Success

    Up to 60 of the questions on this test are case studies. Are you up for the challenge?
  7. Trading Systems & Software

    How Do You Use Stock Simulators?

    Stock market simulators let you pick securities, make trades and track the results-all without risking a penny.
  8. Investing Basics

    Behavioral Bias - Cognitive Vs. Emotional Bias In Investing

    We all have biases. The key to better investing is to identify those biases and create rules to minimize their effect.
  9. Trading Systems & Software

    Guide to TD Ameritrade's Thinkorswim - Chart Analysis Tools

    Chart analysis tools include indicators, drawing tools and chart pattern recognition. There are countless ways to analyze charts and thinkorswim provides loads of tools for doing so. Charts ...
  10. Investing

    9 Cognitive Biases That Affect Your Business

    Human beings often act irrationally when it comes to business decisions. Behavioral finance explains the difference between what we should do and what we do.
RELATED FAQS
  1. Do any markets not exhibit asymmetric information?

    Find out why every market possesses information asymmetry, and why this isn't necessarily a huge or insurmountable problem ... Read Answer >>
  2. What is backtesting in Value at Risk (VaR)?

    Learn about the value at risk of a portfolio and how backtesting is used to measure the accuracy of value at risk calculations. Read Answer >>
  3. What are the advantages and disadvantages of zero-based budgeting in accounting?

    Learn how the information ratio is calculated as a risk-adjusted measure of performance, and understand how it seeks to differentiate ... Read Answer >>
  4. What is the minimum number of simulations that should be run in Monte Carlo Value ...

    Find out how many simulations should be run at minimum for an accurate value at risk when using the Monte Carlo method of ... Read Answer >>
  5. What does the Efficient Market Hypothesis have to say about fundamental analysis?

    Find out what the efficient markets hypothesis has to say about fundamental analysis and how recent finance research has ... Read Answer >>
  6. What does the information ratio tell about the design of a mutual fund?

    Understand what the information ratio is and how to calculate it. Learn what the information ratio reveals about the design ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center