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Classical Ergodicity and Modern Portfolio Theory

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  • Geoffrey Poitras

    (SFU.ca - Simon Fraser University = Université Simon Fraser)

  • John Heaney

Abstract

What role have theoretical methods initially developed in mathematics and physics played in the progress of financial economics? What is the relationship between financial economics and econophysics? What is the relevance of the "classical ergodicity hypothesis" to modern portfolio theory? This paper addresses these questions by reviewing the etymology and history of the classical ergodicity hypothesis in 19th century statistical mechanics. An explanation of classical ergodicity is provided that establishes a connection to the fundamental empirical problem of using nonexperimental data to verify theoretical propositions in modern portfolio theory. The role of the ergodicity assumption in the ex post/ex ante quandary confronting modern portfolio theory is also examined.

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  • Geoffrey Poitras & John Heaney, 2015. "Classical Ergodicity and Modern Portfolio Theory," Post-Print hal-03680380, HAL.
    • Handle: RePEc:hal:journl:hal-03680380
    DOI: 10.1155/2015/737905
    Note: View the original document on HAL open archive server: https://hal.science/hal-03680380
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    Cited by:

    1. Dariusz Filip & Tomasz Rogala, 2021. "Analysis of Polish mutual funds performance: a Markovian approach," Statistics in Transition New Series, Polish Statistical Association, vol. 22(1), pages 115-130, March.
    2. Filip Dariusz & Rogala Tomasz, 2021. "Analysis of Polish mutual funds performance: a Markovian approach," Statistics in Transition New Series, Polish Statistical Association, vol. 22(1), pages 115-130, March.
    3. Poitras, Geoffrey, 2018. "The pre-history of econophysics and the history of economics: Boltzmann versus the marginalists," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 507(C), pages 89-98.
    4. Jovanovic, Franck & Mantegna, Rosario N. & Schinckus, Christophe, 2019. "When financial economics influences physics: The role of Econophysics," International Review of Financial Analysis, Elsevier, vol. 65(C).

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    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G0 - Financial Economics - - General

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