Andrew Lo, Professor of Finance at the MIT Sloan School of Management and the director of MIT's Laboratory for Financial Engineering, discusses his recent paper The Gordon Gekko Effect, corporate culture, and why biology is an increasingly relevant framework for understanding the financial markets.
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.
"In collaboration with Prof. Andrew Lo at MIT Sloan School of Management and Laboratory for Financial Engineering, Dr. Yang’s current research focus is developing and implementing novel business and financing models that utilize bond market capital for financing biomedical drug development..." [Original article is in Chinese]
"Computer models designed to help investors navigate turbulence are accused of making things worse.
"Cobras are revered in Indian culture, but the British Raj took a dimmer view of the poisonous snake. Officials promised a lucrative reward for every dead serpent — a scheme that, according to economic lore, backfired horribly..."
"Andrew Lo, professor of finance at the MIT Sloan School of business and money manager (AlphaSimplex), believes that Wall Street-style financial engineering can hasten cures for cancer and other diseases while providing healthy returns to investors.
"During an MIT Sloan webcast on Thursday, Lo said that preliminary research conducted by him and his colleagues indicated that a “mega” primary research-focused fund could produce returns to bondholders of 5% to 8%, while equity shareholders could expect returns ranging from 8% to 12%. An investment fund with interests in perhaps hundreds of research projects could also provide investors with returns not correlated to the S&P 500..."
"Forget venture capital firms investing in promising biotech startups. If we really want to cure cancer, we need pension funds and insurers putting billions of dollars into a fund made up of hundreds of research projects, according to an MIT professor.
"Since 2012, Andrew Lo, a finance professor at MIT’s Sloan School of Management, has been proposing that financiers create a $30 billion “megafund” that invests in early-stage cancer research and development..."
"MOST people agree that a combination of the slowdown in Chinese economic growth and the impending rate hike in the US are to blame for the recent market sell-off, but neither adequately explains its ferocity..."
"Andrew Lo has spent a lot of time peering into Wall Street’s various black boxes and "modeling the endogenous risk among hedge fund strategies." The finance professor at Massachusetts Institute of Technology’s Sloan School of Management and chairman of AlphaSimplex Group LLC shared his thoughts on Friday about the recent spate of volatility in the stock market and what role strategies such as risk parity, trend-following commodity trading advisers and volatility targeting may have played..."
"New research from a pair of MIT economists argues that the Food and Drug Administration, which decides which new drugs get to market through randomized clinical trials, is too one-size-fits-all in its approach to the approval process for treatments for everything from leukemia to the flu. As a result, they say, the agency is too conservative in regulating trials for severe diseases like pancreatic cancer and not conservative enough when it comes to drugs for less dire ones like prostate cancer..."