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Classical Ergodicity and Modern Portfolio Theory

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  • Poitras, Geoffrey
  • Heaney, John

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 non-experimental 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.

Suggested Citation

  • Poitras, Geoffrey & Heaney, John, 2015. "Classical Ergodicity and Modern Portfolio Theory," MPRA Paper 113952, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:113952
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    Cited by:

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    3. 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).
    4. 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.

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    More about this item

    Keywords

    Ergodicity; Modern Portfolio Theory;

    JEL classification:

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

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