ALPHA DECAY is the phenomenon whereby a particular investment methodology deteriorates in performance over time. Initially well suited to the original market conditions at the time of inception. As AI technology, time and market conditions evolve, traditional methodologies are losing performance faster than ever. They will end up with negative Alpha, from which they cannot recover.
Year on year, we have witnessed ALPHA DECAY increasing is speed. For various and complex reasons, this phenomenon is gathering momentum.
Traditional Methodologies used to deliver a few years of performance before decaying. However, nowadays we’ve observed few non Machine-Learning based methodologies are able to deliver even a single year of performance before irreversible performance decay occurs.