Where Most Market Models Fail

And Why Structural Admissibility Matters More Than Performance

Most market models look intelligent—right up until they fail.

Backtests sparkle. Sharpe ratios impress. Equity curves climb smoothly.
Then regimes shift, volatility changes character, correlations break, and the same models collapse under conditions they were never designed to survive.

This is not a data problem.
It is a measurement problem.

At SagaHalla, our research begins from a simple question that most financial models never ask:

Was risk deployed coherently under the observed market conditions?

Before we ask whether a strategy “worked,” we ask whether it behaved responsibly.

The Hidden Assumption Behind Performance Metrics

Traditional performance metrics—CAGR, Sharpe, drawdown—implicitly assume something that is rarely stated:

If returns were good, risk must have been managed well.

This assumption is false.

A system can:

• Take excessive risk in a favorable regime and appear brilliant
• Accumulate hidden fragility during low volatility
• Fail catastrophically when conditions normalize

Conversely, a disciplined system can:

• Deploy risk conservatively
• Respect market structure
• Still experience losses due to exogenous shocks

Outcome-only metrics cannot distinguish between these cases.

They measure what happened—not whether the behavior was structurally sound.

Markets Are Not Free-Form Random Walks

Asset prices are often modeled as unconstrained stochastic processes.
In practice, they are not.

Even in highly volatile markets, price evolution is constrained by:

• Volatility structure
• Liquidity conditions
• Persistence and memory
• Energy accumulation and dissipation

Some price paths are compatible with these constraints.
Others are not.

This leads to a foundational insight:

Not all price trajectories are admissible.

Most trading systems never evaluate this.

Structural Admissibility: A Different Starting Point

Structural admissibility asks a different class of questions:

• Is the observed price path coherent with its recent regime?
• Is volatility behaving consistently with historical structure?
• Is the system accumulating potential energy—or dissipating it?
• Does the trajectory respect temporal continuity, or is it breaking memory?

Only after these questions are answered do we consider exposure.

This reverses the usual order of reasoning.

We do not predict outcomes and then manage risk.
We evaluate risk structure first—and allow outcomes to follow.

Integrity Before Exposure

The SagaHalla framework formalizes this idea using regime integrity, evaluated across three dimensions:

• Material Integrity — price structure and trend coherence
• Energetic Integrity — volatility, shock absorption, and instability
• Ethereal (Temporal) Integrity — persistence, memory, and regime continuity

These dimensions determine whether a market environment is admissible for risk deployment.

A market can move without being stable.
A strategy can profit without being disciplined.

Admissibility separates these cases.

From Theory to Proof

This post introduces the why.

The full theoretical foundation—including formal definitions of admissibility, integrity constraints, and path compatibility—is presented in our working paper: Asset Price Trajectories and Structural Admissibility. Access is available with free member signup.

👉 Access the full working paper in the SagaHalla Research Library

This research does not propose a new indicator.
It proposes a new order of reasoning.

What Comes Next

In the next post, we will translate structural admissibility into concrete terms:

• What makes a price path admissible?
• How integrity constrains evolution over time
• Why this perspective aligns more closely with physics than with financial folklore

This is the foundation of the SagaHalla Oracle—and the reason its decisions are explainable even when outcomes are uncertain.

This post is part of an ongoing research series on structural admissibility, regime integrity, and risk-aware capital allocation. Nothing herein constitutes investment advice or a promise of returns.