Look-Ahead Bias
(Redirected from Lookahead Bias)
Jump to navigation
Jump to search
A Look-Ahead Bias is a data bias that ...
References
2020
- https://www.investopedia.com/terms/l/lookaheadbias.asp
- QUOTE: ... Look-ahead bias occurs by using information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation. More importantly, a look-ahead bias can unintentionally sway simulation results closer into line with the desired outcome of the test. This leads to economists and analysts putting too much confidence in their models and the ability of the model to predict and mitigate future events. Investors also need to be aware of the potential for look-ahead bias when evaluating particular trading strategies using past data.
- Key Takeaways
- Look-ahead bias is when data that was not readily available at the time is used in a simulation of that time period.
- A look-ahead skews the results and leads to overconfidence in models and other frameworks built out of the skewed results.
- A backtested simulation with a look-ahead bias will not show an accurate result. Therefore, careful research is necessary to determine what data was available at the time.
- Look-ahead bias often happens in "could have" scenarios, where an investor or other professional considers what is a missed opportunity in hindsight. What that person fails to realize is that they know more now looking back than they did at the time they made the decision. Therefore, it may be unwise to judge their—or others—past performance too harshly in retrospect, especially if key information was missing. ...