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

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  • Nolan Alexander
  • Frank Fabozzi

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.

Suggested Citation

  • Nolan Alexander & Frank Fabozzi, 2026. "Measuring Strategy-Decay Risk: Minimum Regime Performance and the Durability of Systematic Investing," Papers 2604.08356, arXiv.org.
    • Handle: RePEc:arx:papers:2604.08356
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    References listed on IDEAS

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    1. Theis Ingerslev Jensen & Bryan Kelly & Lasse Heje Pedersen, 2023. "Is There a Replication Crisis in Finance?," Journal of Finance, American Finance Association, vol. 78(5), pages 2465-2518, October.
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