Alpha Decay Rate

Alpha decay rate quantifies the erosion of a signal's edge in insider-trading and quant scoring platforms. As more market participants gain access to correlated signals, crowding increases and arbitrage accelerates the decay of alpha. This decay is particularly acute in quant strategies involving PDMR transactions, form-4 filings, or beneficial ownership changes, where information asymmetry closes rapidly post-disclosure. Measuring decay rate helps platform operators assess signal robustness, predict out-of-sample performance, and adjust conviction scores dynamically.

In practice, alpha decay rate is estimated by regressing cumulative signal returns against time lags post-signal generation, or by computing the half-life of information edge. High decay rates (steep erosion) indicate that the signal has been efficiently arbitraged or is subject to data snooping bias. Low decay rates suggest signal persistence and genuine alpha. Platform operators track this metric across signal clusters, regimes, and market conditions to filter false positives and allocate conviction weight to persistent signals.