Debate on Bell curve VS Poisson curve-Implications to Modern Finance theories

Bell Curve VS Poisson Curve, implication on Modern Finance

The history of Bell curve is that, the French Emperor Louis V wanted to calculate the location of planets accurately when there, was no such methods available then. He contacted Legendre the Mathematician. for this and Legendre recommended Gauss to the emperor. Gauss started the work measuring the orbits, and predicted their location using the Normal Bell curve which he discovered for this purpose. He figured out the standard deviation and this could predict the location of all planets, if one new the location of any one of them. The standard deviation from the mean for each predicts the location for any time. The history of Bell curve is described here for the reason that it was originally invented to predict the events that are consistent, like planet locations that don’t change with time but are related to one another  at any point in time, so to say they are constant.

Now Poisson created his curve, to predict the death of atomic particles, where the time series formed are not dependent on the previous data.

Now, the Social Scientists comes along and starts applying Normal curve to predict events whose time series data in most cases are not related to each other(each data time series, not the cross sectional data) through correlation, which is a serious error. Modern finance theory uses it as if they are not aware of this fact.

Take for example Black and Scholes formula, where one of the preconditions for it to work it seems is the existence of an Efficient Market. Efficient Market stipulates that one days data is not in any way related to the next days data. B&S then uses the standard deviation sigma to calculate risk which is based on Normal Bell curve which is for data that are related. I live it to you to ascertain the consequences.

Again Capital Asset Pricing Model stipulates efficient market precondition, and beta in it is calculated using Normal curve assumption to data that are not correlated partially, which means again the value may be erroneous or may not be stable enough for long.

It has become a practice where a Professor seems to transfer some error to the student and it goes on for years they work like a tag team one complementing the other and spawning theories that correlate in some means.

Bell curves works better in Physical Phenomenon and is quite reliable in Physical and Health Sciences, rather cannot be depended on when used in Social Sciences. In Physical and Health Sciences the Normal curve works because the averages of the data depicting the phenomenon always are sufficient to generate the required functionality where as Social Sciences of Markets the averages of data don’t work since Humans are discerning by nature and they are capable of price discovery which may be very different from expectations and deviations and can bring about foul outcomes.  

Company forecasts based on Bell curves seems to be. accurate since cetris-paribus states of the economy and company missions and strategies makes their individual data more dependent on previous years.