Paper: arXiv 2610.01115

Authors: Nicolò Bonacorsi

Abstract

In this paper we study whether a trading signal can accumulate enough statistical evidence for reliable deployment before its economic value decays. We solve the problem by measuring statistical evidence and remaining opportunity on a common Kullback-Leibler information scale, obtaining an exact feasibility threshold in a canonical Gaussian model and general information lower bounds beyond it. We show that finite information budgets generate survival frontiers, search penalties, and a market equilibrium in which arbitrage activity shortens the lifetime of certifiable opportunities; a retrospective funding-rate study illustrates the role of persistence.

Complexity vs Empirical Score

  • Math Complexity: 9.0/10
  • Empirical Rigor: 6.0/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: This paper presents a highly mathematical framework for evaluating alpha capacity, integrating information theory and stochastic processes. While it includes empirical illustrations, the core contribution is theoretical, making it strong in both math and rigor. The concept of ‘Certified Alpha Capacity’ and its implications for market equilibrium are novel.

Research Flowchart

  flowchart TD
    A[Research Goal: Certified Alpha Capacity & Arbitrage under Decay] --> B{Key Methodology: K-L Information Scale};
    B --> C[Data/Inputs: Trading Signal, Market Data];
    C --> D{Computational Process: Feasibility Threshold & Info Lower Bounds};
    D --> E[Key Findings: Survival Frontiers, Search Penalties, Market Equilibrium];