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When Alpha Disappears: A One-Switch Benchmark for Decision-Time Leakage in Financial Backtests

Risk Management 2026-05-26 v1 Trading and Market Microstructure

Abstract

We introduce When Alpha Disappears, a paired evaluation benchmark for diagnosing decision-time leakage in financial machine-learning backtests. Rather than treating leakage as a binary property, the benchmark estimates protocol-induced inflation by toggling one evaluation convention at a time around a clean t+1t{+}1-open reference, while holding the data panel, walk-forward split, model family, horizon, portfolio rule, and cost convention fixed. Across two daily-OHLCV equity panels, six model families, and yearly tests from 2016--2024, we find that inflation is highly selective: centered temporal features and same-day-open execution with post-open daily-bar information cause large and stable increases in both predictive and trading metrics, whereas global normalization, future-informed graph structure, and same-day-close execution are weak in most settings. The benchmark is diagnostic rather than a claim of tradable alpha, and is intended to make evaluation assumptions, failure modes, and protocol fragility directly measurable.

Keywords

Cite

@article{arxiv.2605.23959,
  title  = {When Alpha Disappears: A One-Switch Benchmark for Decision-Time Leakage in Financial Backtests},
  author = {Fan Zhang and Zhen Li and Sijia Peng and Yu Chen},
  journal= {arXiv preprint arXiv:2605.23959},
  year   = {2026}
}

Comments

19 pages, including figures, tables, and the appendix

R2 v1 2026-07-22T07:28:54.973Z