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Adaptive market hypothesis

A view that market efficiency is not fixed but evolves: edges appear when conditions change, get competed away as participants learn, and can return later.

Under this framing an edge is an ecological niche rather than a law. A structural change, a new instrument, a new class of participant, or a regulatory shift, opens an opportunity; capital flows in; returns compress; the opportunity closes until conditions shift again.

It fits the observed lifecycle of strategies better than a strict efficient-market-hypothesis. Index arbitrage, small-cap momentum, and early crypto basis trades all followed roughly this path, with fat returns for a few years and thin ones after.

The operational consequence is that strategy research is never finished. You maintain a pipeline, monitor for alpha-decay, and expect to retire things that used to work rather than defending them.

Related: efficient-market-hypothesis, alpha-decay, capacity, market-regime

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