Momentum Factor Decay Analysis: Signal Half-Life Measurement

1. Strategy Overview

Edge hypothesis: Momentum signals decay at predictable, measurable rates that vary systematically by asset class, market cap, volatility regime, and sector. By quantifying this decay curve and estimating signal half-life, a trader can:

• Exit winners dynamically rather than at fixed rebalance dates
• Right-size positions based on remaining alpha (exponential decay model)
• Rotate between asset classes where momentum is fresher (crypto vs. equities)
• Exploit mean-reversion timing by shorting stale momentum signals

Why the edge exists: