Classical Ergodicity and Modern Portfolio Theory

Geoffrey Poitras and John Heaney

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Ergodicity; Modern Portfolio Theory (search for similar items in EconPapers)
JEL-codes: C0 C02 G0 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

Published in Chinese Journal of Mathematics Article ID 737905,.2015(2015): pp. 1-17

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Working Paper: Classical Ergodicity and Modern Portfolio Theory (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:113952

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