"With the advent of social media, there has been an explosion of interest in how information shared online can be used to profit in the stock market.
"Twitter, the social media monster that allows users to share their thoughts on anything–as long as those thoughts are 140 characters or less–is emerging as a favorite dataset for financial researchers..."
We are making breakthroughs almost weekly in our understanding of cancer and other deadly diseases, both in how to treat and – in some cases – how to cure them. So why is funding for early stage biomedical research and development declining just when we need it most? One answer is that the financial risk of drug development has increased, and investors don’t like risk. What if we could reduce the risk and increase the reward through financial engineering? By applying tools like portfolio theory, securitization, and derivative securities to construct “megafunds” that invest in many biomedical projects, we can tap into the power of global financial markets to raise billions of dollars. If structured properly, investors can earn attractive returns with tolerable levels of risk, and many more patients can get the drugs they desperately need. Finance doesn’t have to be a zero-sum game; we can do well by doing good if we have sufficient scale.
© 2020 Andrew W. Lo, MIT Sloan School of Management. All rights reserved.