> You describe a world where you can watch the pattern slowly fade out and stop when it is gone.
Yes, this is a phenomenon that happens very often during alpha research. You discover something that is decaying already, and you join the wagon until there is no anomaly to correct anymore, at which point you should have found other wagons to join. It's an eternal race of finding new alphas while your previous ones decay.
The rest of your argument doesn't really make sense. You seem to be just against any form of statistical inference.
"Alpha" is called like that on purpose because it is _not_ noise anymore. If you regress it against your benchmark, you should definitely see a difference between alpha and epsilon, given you have enough points to reach statistical significance.
> one would have to show that stocks differ from random walk series
There is easily 40 years of litterature on the subject. You can convince yourself in 5m by running a PCA of stocks returns against beta, sector and country. Then you can run a second round of PCA of these residualized returns against momentum, size, value and quality. Quants funds find alpha against these latter residualized returns.
Yes, this is a phenomenon that happens very often during alpha research. You discover something that is decaying already, and you join the wagon until there is no anomaly to correct anymore, at which point you should have found other wagons to join. It's an eternal race of finding new alphas while your previous ones decay.
The rest of your argument doesn't really make sense. You seem to be just against any form of statistical inference.
"Alpha" is called like that on purpose because it is _not_ noise anymore. If you regress it against your benchmark, you should definitely see a difference between alpha and epsilon, given you have enough points to reach statistical significance.
> one would have to show that stocks differ from random walk series
There is easily 40 years of litterature on the subject. You can convince yourself in 5m by running a PCA of stocks returns against beta, sector and country. Then you can run a second round of PCA of these residualized returns against momentum, size, value and quality. Quants funds find alpha against these latter residualized returns.