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Business Insider

THE 'GEKKO' EFFECT: How Wall Street can manage risk ... in its own employees
Why do people do bad things at work? A recent paper out from Andrew Lo, a finance professor at MIT's Sloan School of Management, suggests it might be a lot more about the corporate culture than the individuals themselves. Available HERE
El Economista

Las emociones en las decisiones financieras
Studies show that emotions are inevitable, and maybe even necessary, when making decisions. Available HERE
Wall Street Journal

U.S. Is Faulted for Risking Edge in R&D
A new report from the Massachusetts Institute of Technology (MIT) is faulting the U.S. government for failing to maintain and grow its investments in basic scientific research, even as European and Asian nations are dramatically increasing their research and development (R&D) spending. Andrew Lo, a finance professor at the MIT Sloan School of Management and one of the report's authors, says the cutbacks in basic research could have a high cost in both national prestige and long-term economic opportunity. Available HERE
Yale Daily News

A decade later, former YIO intern now manages billions
In a New York Times profile published last Thursday, former Yale Investments Office analyst Zhang Lei GRD ’02 SOM ’02 chronicled his journey from interning under Swensen to managing one of the world’s most successful firms, Hillhouse Capital Group. The firm, which Zhang founded in 2005, now controls over $18 billion... MIT Finance professor Andrew Lo ’80 said that leveraging the skills and investment knowledge present in the alumni community is not a new phenomenon. “I think it is an advantage because alumni are quite loyal to the university so they have additional motivation for participating in supporting the endowment activity,” Lo said. “We have seen this not only at Yale, but at other universities as well, where if you look at the investment committee of endowments, they are populated with alumni who are talented in the investment industry and are willing to give their services and expertise.” Available HERE
The Wall Street Journal

‘Smart Beta’ Funds Might Outsmart Investors
“Smart beta” funds are trying to outsmart your active manager. But individual investors who are drawn to them should also make sure they don’t get outsmarted themselves... “Smart beta is often accompanied by dumb sigma,” [Professor Andrew Lo] says, meaning additional risk that is unnecessary and which investors may not be rewarded for. “When you have multiple sources of beta, you also have multiple sources of risk. Illiquidity risk, for example, can often be a companion to smart beta.” Available HERE
MSN Money

Is there a next Jack Bogle? Not if you ask Jack Bogle
Freezing rain is falling on the sidewalks at Vanguard Group’s sprawling suburban campus outside Philadelphia, but it doesn’t slow down company founder John C. “Jack” Bogle as he hustles from his office to the cafeteria for lunch. A slew of money managers and academics—Robert Arnott of Research Affiliates, for example, and Andrew Lo at AlphaSimplexGroup—say they’re building on what Bogle created. Available HERE
Yale Daily News

Yale's Endowment Falls Behind Texas'
For the first time since 2002, Yale is no longer the second wealthiest institution of higher education in the nation. While some experts interviewed said Yale’s drop in rankings is not a cause for concern, others argued that large, public institutions may increasingly challenge private universities when it comes to endowment size. “Yale is still a dominant force in the endowment world,” Massachusetts Institute of Technology finance professor Andrew Lo ’80 said. “Texas is a very big state and there is lots of opportunity to grow their asset base, while Yale is in the midst of using funds for new buildings — it is all part and parcel of that dynamic.” Available HERE

SEC names Wall St. heavyweights to new rules advisory panel
U.S. securities regulators have tapped a list of well-known stock market experts to serve on a new advisory panel tasked with helping shape rules affecting high-speed traders and dark pools. Available HERE
Wall Street Journal

When Parents Start Companies to Cure Their Children
For years, Brad Margus has juggled two goals as chief executive: Make money, and find cures for his children. He just co-founded a startup, Exigence Neurosciences Inc., in part to seek treatments for his two sons who have ataxia-telangiectasia or A-T, a rare progressive and eventually fatal neurological disease... “The amount of money needed to develop a single drug is so much more than what pure altruism can fund,” says Andrew Lo. Available HERE
Financial Times

"The dodo, shifting conditions and investor survival
Andrew Lo, of the MIT Sloan school of business, who has for years worked on an ambitious project to apply biology to finance, published a paper with several colleagues, providing mathematical equations to show how risk-averse behaviour is necessary for survival. Available
Boston Review

"Lessons from Market Basket"
The MIT Sloan School of Management's Institute for Work and Employment Research, The MIT Political Science Department and Boston Review convened a diverse group of faculty and community leaders to discuss the lessons that can be drawn from the astonishing events involving Market Basket. Excerpts Professor Andrew Lo's comments from the panel on Finance, Marketing and Operations are included in this article. Available
Institutional Investor

"A Time for New Regulatory Thinking"
New Regulatory Thinking Redux. Too much innovation caused the financial crisis; too little policy innovation followed it. Professor Andrew Lo comments on new regulatory thinking. Available

"Better Benchmarks Through Behavioral Finance?"
Natixis and MIT team up to build individual benchmarks based on investor behavior. Dr. Andrew Lo, Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management and director of the Laboratory for Financial Engineering (LFE), will lead the project, which will be conducted using Natixis data (the firm has collected several years worth of data that track the behavior of individual investors, financial advisors and institutional investors, and that is based on responses to more than 500 survey questions by more than 30,000 participants).  The main goal of the project is to create personal, individual benchmarks that take into account individual behaviors in order to improve investor participation and performance. Available
The Wall Street Journal

"Should Alzheimer’s Bonds be Issued to Fund Drug Development?"
The quest for a treatment that can combat Alzheimer’s remains frustrating and expensive, but Andrew Lo believes he may have a path forward. A finance professor who directs the Laboratory for Financial Engineering at the MIT Sloan School of Management, Lo thinks that a public-private partnership could solve some of the funding issues that have plagued drug discovery and development. Available
The Boston Globe

"Key to curing Alzheimer’s may be changing drug development funding"
 MIT economist, Andrew W. Lo, calls for Alzheimer’s ‘megafund’. Available

"Shots on Goal: Call for a New Alzheimer's Drug Discovery Paradigm"
Researchers argue for a public-private superfund to advance many Alzheimer’s therapeutics projects in parallel. Available
MIT News

"How a new approach to funding Alzheimer's research could pay off"
More than 5 million Americans suffer from Alzheimer’s disease, the affliction that erodes memory and other mental capacities, but no drugs targeting the disease have been approved by the U.S. Food and Drug Administration since 2003. Now a paper by an MIT professor, Andrew W. Lo, suggests that a revamped way of financing Alzheimer’s research could spur the development of useful new drugs for the illness. Available

"U.S. banking regulators hire math geeks of their own
MIT finance professor, Andrew Lo, is working with banking regulators at the Office of the Comptroller of the Currency, an arm of the Treasury Department, to help build quantitative tools to find potential credit risk in the banking industry, starting with the mortgage market. The efforts of Lo, a pioneer in his field, are part of an unprecedented push at the OCC to embrace quantitative analysis. The regulator is building models, hiring financial engineers - known on Wall Street as "quants" or "strats"- and questioning banks to a far greater degree than it ever has before. Available
Scientific American

"To Cure Cancer, Provide a Profit Motive"
Creative investments could fund a huge number of new drug-development projects. Available
Making Sen$e, PBS Newshour

"Can financial engineering save cancer research?"
Cancer is the leading cause of death for those under 85, but an innovative financing model for research hopes to change that. Available
Money Magazine

"How to invest when the market feels scary"
Andrew Lo, finance professor at MIT, combines economics, psychology and evolutionary biology to develop models that maximize returns in bull markets and sidesteps losses in panics. Available
MIT Sloan Newsroom

"Financing a cure for cancer"
MIT Sloan finance professor Andrew Lo applies a hedge fund approach to increasing investment in drug development Available
The Wall Street Journal

"Upside: 'Alternative' Funds: Are They Really Better Than Bonds?"
With rising interest rates hurting bond prices, investors and financial advisers are scrambling for other options to provide stability to their portfolios. Some of them have turned to "alternative" funds, many of which claim to offer bond-like stability without exposure to interest-rate rises. Alternative funds use hedge-fund-like strategies to try to capture returns that aren't tied to broad markets. Some funds use options to limit their market exposure, for example, or place bets that certain stocks will drop in value. Professor Andrew Lo comments on the use of alternative funds. Available HERE
New York Times

"A Data Weapon to Avoid the Next Financial Crisis"
The financial crisis was, among other things, a data failure. Now the Treasury’s Office of Financial Research is trying to use data to create an early warning system for risk. Available HERE
WBUR Cognoscenti

"A Judicial Whodunnit: Shedding Light On Unsigned Opinions"
In this blog post MIT’s Andrew Lo describes how technology can analyze language to suggest who might have authored unsigned U.S. Supreme Court opinions. Available
Financial Times

"Can Wall Street help cure cancer?"
Economists and financiers are thinking creatively about investing in cancer research, in desperate need of funding. Earlier this week, some of America's top cancer doctors convened in Boston for some intensive brainstorming about future research into the disease. But this particular gathering, organized by the MIT Sloan School of Management and known as CanceRX, featured a novel twist: next to the oncologists, there were renowned economists such as Andrew Lo and Robert Merton. More unusual still, there were bankers and financiers too. Available
Financial Times

"Financial engineering could heal medical funding ills"

Can financial engineering cure cancer? It is an outlandish question, and many might find it distasteful, but the answer might be "yes". It is worth trying to find out. This is the argument of Andrew Lo, a brilliant and entrepreneurial finance professor from the Massachusetts Institute of Technology's Sloan School of Mangement, who convened a conference to float his idea for a cancer-fighting "super fund" this weekend, following a tour to London to present his ideas. Available
Business Insider

"Finance Genius Andrew Lo Explains How The World's Biggest Problem Can Be Fixed With Financial Engineering"
In a question and answer with Business Insider's Rob Wile, Professor Lo speaks about the state of the markets, why investing must now be treated like exercise, and what we can expect from his latest work. Available
Financial Times

"Markets: With the volume down"
After a global economic slump caused by seemingly reckless financial market activity, a period of calm might appear welcome. But moribund markets spell bad news for bank employees, and schadenfreude by others would be misplaced if they were being lulled into a false sense of security. Available
RSF Review

"Rethinking the Financial Crisis: An Interview with Andrew Lo"
A professor of finance at MIT, Andrew W. Lo is an editor of the RSF volume Rethinking the Financial Crisis. The volume addresses important questions about the complex workings of American finance and shows how the study of economics needs to change to deepen our understanding of the financial sector. Available
Market Watch, The Wall Street Journal

"The Missing Link of Investing"
Andrew Lo, a professor at MIT Sloan School of Management and investigator at MIT’s Computer Science and Artificial Intelligence Lab, has been seeking to find out why so many bad decisions were made on Wall Street leading up to the financial crisis. Lo, along with Thomas J. Brennan, a law professor at Northwestern, says the evolution of the human mind may explain a blind faith that housing values will rise and that mortgage securities and stocks would not fall in value as well as the opposite view. Available
The A to Z of Nanotechnology

"New Study Provides Insights to Understand Graphene's Full Potential"
Andrew Lo, the Charles E. and Susan T. Harris Professor of Finance at the MIT Sloan School of Management, who has been on the MIT faculty since 1988, last year accepted a secondary appointment in EECS and became a primary investigator in CSAIL. Recently, Lo has used techniques borrowed from computer science to mine credit-bureau data and data about the transactions conducted by customers of financial institutions to more accurately predict the risk of default or delinquency. Lo is one of the researchers at bigdata@CSAIL, a new initiative led by professor of computer science and engineering Sam Madden. Available
The Financial Times

"School proposes megafund to battle cancer"
Professor Andrew Lo and MIT colleagues, Jose-Maria Fernandez and Roger Stein, have proposed the creation of a $30bn “megafund” that would invest in early-stage biomedical research and drug development. Investing in as many as 150 experimental compounds at one time increases the chances that a few of the ventures will succeed, and generate enough profit to make up for those that fail. Prof Lo recently talked to the FT about his idea.

Cancer Discovery

"A Megafund for Drug Development"
A proposed megafund would combine debt securities with equity investments to help pay for high-risk biomedical research. Available
The Boston Globe

"New ways to pay for progress"
MIT finance professor and hedge fund manager Andrew W. Lo has another idea about how to further the cause — by harnessing the power of financial wizardry. Lo wants to create a “megafund” that would raise billions of dollars for early-stage research in cancer drugs. Available
MIT news

"How better financing could help create new cancer drugs"
MIT finance researchers say a diversified ‘megafund’ of securities could help the industry deliver new products to consumers. Available
Money Magazine

"Why buy and hold doesn't work anymore"
Economist and finance professor at M.I.T.'s Sloan School of Management, challenges a core idea of financial theory: that markets are "efficient," meaning there's no point in trying to time your moves in and out of stocks, since everything you could know about them is already baked into the price. Available
Harvard Gazette

"Thinks about health as an investor might"
A “proof-of-concept” study applying financial portfolio theory to U.S. biomedical research funding shows that the nation’s health might gain the largest benefit by increasing funding on heart, lung, and blood diseases, and might gain the quickest benefit by increasing spending on mental illness research. Available

"The World's 100 Most Influential People: Andrew Lo, Economist"
Time recognizes MIT's Sloan School of Management professor, Andrew W. Lo as one of the World's 100 most influential people of 2012. Available
The Portfolioist

"Dr. Andrew Lo: ‘Buy and Hold’ Does Not Work Anymore"

The MIT/Sloan School of Management professor and Director of MIT’s Laboratory for Financial Engineering has been widely quoted on the implications of the 2008 financial crisis. One theme that Dr. Lo emphasizes repeatedly is that the risks associated with different asset classes can vary dramatically over time and for this reason, risk must be tracked, forecasted and budgeted. Available
Planet Money, NPR

"What An Economist Learned From Reading 21 Books About The Crisis"
MIT economist Andrew Lo set out to review a couple books about the financial crisis. Those books led to a couple more books, which led — you see where this is going — to 17 more books. Now, Lo is about to publish "Reading About The Financial Crisis: A 21 Book Review".  Available
The Economist

"An über-review of the crisis: The Lo down, A finance professor turns to literary analysis"

Andrew Lo, a professor at MIT's Sloan School of Management, was asked by the Journal of Economic Literature to write a review of three or four of the more important academic books on the crisis. The initial sample, he thought, was too small. There were lots of useful books on the topic, from journalists as well as academics. Widening the spectrum would also highlight areas of disagreement between authors. Available
The Huffington Post

"European Crisis Could Tip U.S. Into Recession, Economists Warn"
As the Greek government appears increasingly likely to default on its debt, economists are envisioning potential dire spillovers to the United States, with anxiety afflicting the financial system, making money tight and possibly tipping the American economy back into recession. MIT Sloan Professor Andrew Lo says, "We may see a number of banks go under." Available HERE
MarketWatch, MSN Money

"5 Investment Tips for Volatile Times"
With shock waves roiling financial markets worldwide, investors are seeking new ways to protect their portfolios from the next upheaval. MIT Sloan Professor, Andrew Lo, says that key strategies to eke out a profit include minimizing costs and getting as much diversification as you're comfortable with."  Available HERE
The New York Times

"Market Swings are Becoming New Standard"
Day after day, stocks swing sharply by hundreds of points. Some experts see volatility as a problem. Another viewpoint is that stocks are rightly volatile now because there is so much uncertainty about where the economy is heading. MIT Sloan Professor Andrew Lo says that the last few years have been the most volatile for all of recorded history10 of the biggest 20 daily upswings and 11 of the largest 20 daily drops since the beginning of 1980 to the end of August have occurred in just the last three years.  Available HERE
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