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
“In backtests, a model trained on text written after the test period introduces look-ahead bias.”
- Spot flaws in the backtest of a strategy
“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
“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
Practise look-ahead bias until it is automatic: questions that explain every wrong option.
Take the free diagnostic →