Statistics

Look-ahead Bias

Using information in a backtest that would not have been available at the time of the decision.

Common instances: restated financials used on the original announcement date; quarterly data applied before its reporting lag; index membership applied before it was announced.

The subtle one. Standardising a feature using the mean and standard deviation of the entire dataset leaks future information into every observation. This is extremely common and rarely noticed, because nothing about the code looks wrong.

The tell. A backtest with suspiciously smooth performance, or a Sharpe that collapses when you re-run with proper point-in-time data.

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Survivorship Bias and Other Data Traps

The biases that make backtests look better than reality - and the questions interviewers use to find out whether you know them.

Related terms

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