Alpha

What it is

Alpha is the return of a strategy above what the market itself delivered — the part that is attributable to skill or edge rather than to simply being exposed to the market.

Why it decays

Any pattern that produces alpha gets arbitraged away once it becomes widely known. This is the single most important fact about the term: alpha is not a fixed quantity that can be sold in a box.

It also means a claim of alpha is almost always unfalsifiable in isolation — you cannot tell skill from luck, or from a market that simply went up, without knowing what the market did.

How to check

Ask what the benchmark is, and over what window. A return with no benchmark stated is not alpha — it is a number.

Ask also: if this pattern worked reliably and was public, why would it still work?

And ask what the beta was: alpha is the part left over after market exposure, so a claim without it is unmeasured. See also alpha decay.