Look-ahead bias

Using information in a test that was not available at the time being tested, such as a model trained on text written after the backtest period. It makes a strategy look better than it could have been.

Where you will meet it

Look-ahead bias appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Explain where AI and large language models fall short or pose risks in investment work
  CFA Level I · Quantitative Methods

  “In backtests, a model trained on text written after the test period introduces look-ahead bias.”

• Spot flaws in the backtest of a strategy
  CFA Level II · Portfolio Construction

  “Look-ahead bias uses information not available on the date, such as accounts published weeks after the period end, or later restated figures.”

• Set out the steps by which a quantitative active equity strategy is developed
  CFA Level III · Portfolio Management Pathway

  “Data are gathered and cleaned, using point-in-time records to avoid look-ahead bias and including delisted firms to avoid survivorship bias.”

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 L · Glossary