Execution Costs Are Part of the Signal

Paper alpha dies in the tape

A strategy that looks sharp on close-to-close returns can be mediocre once participation rates, spreads and adverse selection are included. For systematic books, execution is not operations after research—it is part of the research hypothesis.

Sophron evaluates signals jointly with a cost model: expected turnover, capacity and the market regimes where impact rises fastest.

Design habits

• Estimate costs before celebrating Sharpe.
• Stress impact when liquidity thins, not only in average months.
• Separate “information edge” from “implementation edge.”
• Revisit participation assumptions when AUM or product structure changes.

AI monitoring, human limits

Sophron AI can flag unusual slippage versus model and surface venue or timing anomalies. It does not replace trade oversight or broker relationships.

If a signal only works with frictionless fills, it does not work.