"Indexes are becoming more than just market-cap-weighted portfolios, according to a new report from MIT. With new passive investment products continuing to emerge, Sloan Professor of Finance Andrew Lo proposed broadening the definition of an index to include “dynamic indexes” such as smart beta strategies..."
"The investment industry should be constantly looking at the impact of technology on the status quo. Just because indexes have been defined as cap-weighted portfolios, doesn’t mean that can’t change. In fact, the evolution in portfolio management necessitates a change in thinking with regard to the definition of indexes, in particular so risk management can be decoupled from alpha generation. In a new paper that argues for a new definition of what constitutes an index, Andrew Lo, professor of finance at MIT Sloan School of Management pushes the boundaries by not only suggesting change, but by demonstrating a new functional definition for indexes and the benefits, and pitfalls, of doing so..."
"Economist, finance professor and investment manager Andrew Lo says some of the 'financial weapons of mass destruction' that helped trigger the 2008-'09crisis can be used for good. If deployed in megafunds by teams of savvy money managers and scientists, he believes, the securitization of intellectual property related to biomedical research could yield lucrative returns while also breathing life into what the biotechnology industry calls the valley of death - neglected early-stage, risky drug development projects for the rarest and most intractable diseases. But Lo, who has conducted several simulations that he says show this strategy could work, is just the idea guy..."
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..."