Skip to content

CFA Level I · CFA Level I Exam · Estimation and Hypothesis Testing

An analyst backtests a strategy using financial statement data for fiscal year-end December 2022 to pick stocks as of 31 December 2022, although the statements were published only in March 2023. The most likely bias in the backtest results is:

The backtest most likely suffers from look-ahead bias. It selects stocks on a date using financial statements that were not published until months later, so the strategy relies on information unavailable to investors at that time, which overstates the realistic performance.

  1. ATime-period bias
  2. BLook-ahead biasCorrect
  3. CSurvivorship bias

Explanation

The test uses information that was not available to investors on the portfolio formation date. Using data not public at the time is look-ahead bias. Time-period bias relates to the choice of sample window, and survivorship bias to excluded failed entities.

Did you get it right without looking?

One question tells you little. A timed set on Estimation and Hypothesis Testing shows your real accuracy, how long you take and where you lose marks.

Practise Estimation and Hypothesis TestingFree diagnostic mock

More Estimation and Hypothesis Testing questions