Measuring Strategy-Decay Risk: Minimum Regime Performance and the Durability of Systematic Investing
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arXiv
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| Autores principales: | , |
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| Formato: | Preprint |
| Publicado: |
2026
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| Acceso en línea: | |
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| _version_ | 1866910116840734720 |
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| author | Alexander, Nolan Fabozzi, Frank |
| author_facet | Alexander, Nolan Fabozzi, Frank |
| contents | 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. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2604_08356 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Measuring Strategy-Decay Risk: Minimum Regime Performance and the Durability of Systematic Investing Alexander, Nolan Fabozzi, Frank Risk Management Portfolio Management Applications 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. |
| title | Measuring Strategy-Decay Risk: Minimum Regime Performance and the Durability of Systematic Investing |
| topic | Risk Management Portfolio Management Applications |
| url | https://arxiv.org/abs/2604.08356 |