Page 15 - FINAL CFA SLIDES DECEMBER 2018 DAY 4

Session Unit 2:

8. Statistical Concepts and Market Returns

LOS 11.k: Describe the issues regarding selection of the appropriate sample size (data-mining
bias, sample selection bias, survivorship bias, look-ahead bias, and time-period bias) p.262

Increasing the sample size will generally improve parameter estimates and narrow CI (unless
larger samples instead contain observations from different population distributions) .

The cost of more data must be weighed against these benefits, and adding data that is not

generated by the same distribution will not necessarily improve accuracy or narrow Cis.

Potential mistakes/biases:

Data mining -significant relationships that have occurred by chance;

Sample selection bias -selection is non-random;

Look-ahead bias -basing the test at a point in time on data not available at that time;

Survivorship bias -using only surviving mutual funds, hedge funds, etc.); and

Time-period bias -the relation does not hold over other time periods.