Geopolitical and Institutional Constraints on Adaptive Market Efficiency -- A Feasibility Diagnostic for Robust Portfolio Construction

TL;DR

This paper introduces a new framework and a diagnostic indicator, GAER, to assess the informational feasibility of markets under geopolitical and institutional constraints, aiding robust portfolio construction.

Contribution

It develops a structural framework linking institutional and geopolitical factors to market efficiency, and introduces GAER as a diagnostic tool for constraint-aware financial modeling.

Findings

GAER measures the concentration of adaptive-efficiency-supporting assets.

GAER serves as a boundary condition for portfolio methods.

The framework links institutional factors to market informational feasibility.

Abstract

This paper develops a structural framework for characterizing the informational feasibility of financial markets under heterogeneous institutional and geopolitical conditions. Departing from the assumption of uniform and time-invariant market efficiency, adaptive efficiency is conceptualized as a localized and state-dependent property emerging from the interaction between economic scale, institutional enforcement, and geopolitical embedding. To operationalize this perspective, the paper introduces the Geopolitical-Adaptive Efficiency Ratio (GAER), a descriptive cross-sectional indicator measuring the concentration of adaptive-efficiency-supporting mass within institutionally and geopolitically central assets. GAER is not a return-predictive signal, factor, or regime classifier. Instead, it functions as a diagnostic boundary condition, delimiting the domain in which ranking-based and robustness-oriented portfolio construction methods are plausibly applicable. The framework integrates insights from adaptive market theory, institutional economics, and political economy, linking disclosure continuity, liquidity provision, and enforcement credibility to the persistence of informational signals in asset prices. GAER is formalized, its theoretical properties are discussed, and its interpretation is illustrated using a global equity snapshot based on publicly observable information. The contribution separates informational feasibility from portfolio construction and execution, providing a conceptual foundation for constraint-aware financial modeling without reliance on forecast-driven assumptions or parametric optimization.