book: ch09 cost/turnover frontier — exp 26, round 3, evidence #015/#020

book/chapters/09-cost-turnover-frontier.md

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+# Chapter 09 — The Cost/Turnover Frontier
+
+Status: drafting. Claim inventory: see `README.md` ch. 09.
+
+This chapter is the cleanest result in the book: on an *identical signal*, the campaign moved net excess return from **−3.21% to +2.13%** purely by relieving turnover/cost pressure — changing the strategy's `n_drop` from 2 to 1. Signal metrics did not move; the outcome did. That is the definition of a binding cost constraint, and it sets the frontier every later improvement must operate on.
+
+## The result
+
+Exp 26 ran the identical compact-stochastic reference signal through two construction variants `(PROVEN → exp 26, EVIDENCE#015)`:
+
+| Configuration | Gross | Net | MaxDD | IR | IC / RankIC |
+|---------------|-------|-----|-------|-----|-------------|
+| n_drop 2 (chases the drop) | +7.02% | **−3.21%** | — | — | identical |
+| n_drop 1 (holds the dropped name) | +7.02% | **+2.13%** | −7.69% | 0.21 | identical |
+
+The gross return and the signal metrics (IC/RankIC) are identical between the two rows — the entire ~5.3pp gap is cost. `n_drop` 2 means the strategy refuses to hold the top-ranked name and buys the next one down, so it chases in and out of the extreme winner every day; `n_drop` 1 holds it. Lower turnover, not a better signal, is what turned the book positive `(PROVEN → exp 26)`.
+
+## Why cost is the binding constraint
+
+Ch. 03 established the noise floor: on this signal, the gross→net collapse is ~9–10pp of cost drag at realistic assumptions (5bp open / 15bp close / $5 minimum) `(PROVEN → exp 22–26 composite, EVIDENCE#011–015)`. Exp 26 then proved the direction of relief: cost is not a fixed tax you subtract, it is a **construction decision**. Turnover is the cost's driver, and turnover is chosen by the strategy — dropout rule, rebalance cadence, and order type.
+
+The campaign's best net IR is 0.21 — a real but thin edge. Any addition that adds turnover faster than it adds gross return loses (the refuted runs of ch. 07 all *added* features that churned the book).
+
+## The frontier
+
+The campaign's measured points on the frontier:
+
+- **n_drop 2 → 1**: the reproduced win; holds the extreme winner, cuts daily churn `(PROVEN → exp 26, EVIDENCE#015)`.
+- **Live round 3**: turnover ≈ 0.74 at n_drop 1, invested $74,202.85, realized slippage 4.54 bps `(PROVEN → round 3, EVIDENCE#020)`. The live turnover is the first *measured* number the frontier can be calibrated against.
+- **Untested relief levers** (hypotheses from the desk's design notes, not yet isolated on the clean lake): weekly instead of daily rebalance; no-trade buffer bands (skip trades below a return-to-cost threshold); notional instead of qty orders at small sizes `(HYPOTHESIS → chat-ideas.md)`.
+
+`TODO(evidence-needed: weekly-rebalance and no-trade-band isolation runs on the exp-26 book — each would trade ~1pp of cost drag against ~1 day of signal decay)`
+
+## The discipline the frontier imposes
+
+Because the edge is thin and cost is the binding constraint, the acceptance contract for any change tightens: a candidate must beat the n_drop=1 reference on net IR *and* on IC/RankIC (ch. 07), and its turnover must not silently rise. The book treats turnover as a first-class metric to be reported with every run, not a tooling detail `(PROVEN → exp 26 + round 3; the numbers to report are turnover, slippage bps, and cost as % of gross)`.
+
+## Practice note
+
+Hold the winner. Prefer the lowest-turnover construction that preserves the ranking. Measure turnover and realized cost in every round; reconcile them against the backtest's 5bp/15bp/$5 model (ch. 11). The frontier is where this campaign's edge lives, and it is narrower than the backtest suggested.