What Is Forward return?

A forward return is the return realised after a decision time over a specified prediction horizon. For example, at date t, a five-day forward return measures the return from t to t + 5 trading days. It is commonly the target variable for a return-prediction model and the realised outcome used to calculate an information coefficient (IC).

The return definition must be specified: simple or log return, gross or excess return, currency, corporate-action treatment, and whether it includes costs. Its start must follow the time at which the signal was actually available; otherwise the calculation leaks future information. Overlapping forward-return windows create dependent observations, which affects uncertainty estimates and validation design.

See also

• Prediction horizon

• Look-ahead bias

• Backtest

Research and literature

• Shihao Gu, Bryan Kelly, and Dacheng Xiu, Empirical Asset Pricing via Machine Learning, The Review of Financial Studies 33(5), 2020.