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

Battle Count: 102

Directly addresses a core challenge in systematic investing: the progressive erosion of strategy effectiveness. Provides a practical, interpretable metric for evaluating factor strategy durability, identifying fragile strategies before losses occur, and informing allocation decisions. Highly relevant for quant portfolio managers, risk officers, and strategy researchers dealing with alpha decay and model obsolescence.

Core computation requires: (1) regime segmentation of return series, (2) Sharpe ratio calculation within each regime, (3) optimization over all valid split points to find minimum. The combinatorial search over splits grows with sample size and number of splits s. For s=1 (single split), it is a simple scan. For multiple splits, it becomes combinatorial. Requires careful handling of minimum window constraints. No code repository provided.

Factor data is publicly available from jkpfactors.com (Jensen, Kelly, Pedersen 2023). The MRP methodology is formally defined with equations. However, regime segmentation details are partially in Appendix B, and the optimization over all possible splits requires computational implementation not fully specified. Sensitivity tests are provided but full numerical results for all factors are 'available upon request.'