Risk management has begun to eclipse investment returns as the primary focus of a growing number of U.S. pension fund executives, reflecting lingering concerns over just how vulnerable institutional portfolios proved during the market's recent meltdown. MIT professor, Andrew Lo says that a growing number of institutional investors have "gotten religion," concluding they can't sit idly by and allow these volatility shocks to take them by surprise.
Like a contemporary "whodunit" with a global crime scene, the financial meltdown has left behind countless victims, and lots of pointing fingers. The reasons for the collapse are debated by this group of estimable economists, some of whom worry that without really understanding what happened, we are in for a repeat episode.
"Economists desire to be able to explain 99% of all economic phenomena with three laws," says MIT Sloan Prof. Andrew Lo in a discussion on why economists envy physicists. "That's what physicists can do [in physics]. In fact, [in economics] we have 99 laws that explain maybe 3% of all phenomena"...
Recently, the National Science Foundation sent out a query asking economists and social scientists to draw up "grand challenge questions that are both foundational and transformative"—a request that Andrew Lo, says is a first in his experience.