Measuring Strategy-Decay Risk: Minimum Regime Performance and the Durability of Systematic Investing

Nolan Alexander and Frank Fabozzi

Papers from arXiv.org

Abstract: Systematic investment strategies are exposed to a subtle but pervasive vulnerability: the progressive erosion of their effectiveness as market regimes change. Traditional risk measures, designed to capture volatility or drawdowns, overlook this form of structural fragility. This article introduces a quantitative framework for assessing the durability of systematic strategies through minimum regime performance (MRP), defined as the lowest realized risk-adjusted return across distinct historical regimes. MRP serves as a lower bound on a strategy's robustness, capturing how performance deteriorates when underlying relationships weaken or competitive pressures compress alpha. Applied to a broad universe of established factor strategies, the measure reveals a consistent trade-off between efficiency and resilience -- strategies with higher long-term Sharpe ratios do not always exhibit higher MRPs. By translating the persistence of investment efficacy into a measurable quantity, the framework provides investors with a practical diagnostic for identifying and managing strategy-decay risk, a novel dimension of portfolio fragility that complements traditional measures of market and liquidity risk.

Date: 2026-04
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2604.08356 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2604.08356

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().