Data mining

Searching many variables or rules until something looks significant. Test enough hypotheses and chance alone produces impressive results, so how many were tried matters as much as the result.

Where you will meet it

Data mining appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Set out what backtesting an investment strategy aims to achieve
  CFA Level II · Portfolio Construction

  “A backtest is a necessary filter for an idea but not proof: good historical performance may reflect luck, data mining or a regime that has passed.”

• Set out the obstacles an analyst meets when producing forecasts for capital markets
  CFA Level III · Asset Allocation

  “Data mining and time-period bias create false patterns, and ignoring conditioning information hides how relationships change with the state of the economy.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with D · Glossary