This is an abridged version of an MIT Sloan School of Management lecture delivered online by Prof. Andrew W. Lo to students in his 15.481 class "Financial Market Dynamics and Human Behavior" on March 31, 2020.

The finance faculty from the MIT Sloan School of Management have today sent an open letter to Congress supporting a stimulus package that focuses on combating the coronoavirus pandemic directly, as well as helping economically vulnerable households and small businesses. The MIT professors also said that unrestricted cash injection into large corporations would be a “grave mistake”.

“Bailouts of large firms mainly benefit large investors who are not as economically vulnerable and should understand the risks of investing in stocks and other corporate securities in the first place,” the letter states. “The fact that the 2017 corporate tax cut has led to a dramatic increase in share buybacks suggests that any similar cash injection into large corporations would mostly benefit large investors. In addition, large firms are much stronger financially.

Watch the MIT Industrial Liaison Program with professors Yossi Sheffi, Alex Pentland, and Andrew Lo for a special webinar highlighting the impacts of COVID-19 on business.

Topics include:
* What should firms be doing with their supply chain now?
* Who is most at risk in your organization? What should firms be doing to prevent catastrophic spread of the virus inside their organizations?
* What do executives need to be watching now in financial markets?

Andrew W. Lo's presentation slides available HERE

See overview and agenda on the MIT ILP website

Clark Kent was a mild-mannered reporter; Peter Parker, a lonely high school student. They were the perfect disguise for their alternate selves, Superman and Spider-Man, allowing them to evade attention when they weren’t saving the world.

So, who will save the financial services industry from Covid-19? Andrew Lo, the MIT finance professor, suggests another unlikely hero – quants. Their superpower, he argues, is the ability to act as a bridge between the world of science and the world of finance.

Andrew W. Lo, Ph.D., Professor and Director of the Laboratory for Financial Engineering at MIT Sloan School of Management, believes the biggest barrier, from an investor perspective, are new business models. “That, to me, is the one thing that we can be thinking about differently that we aren’t right now. People are already focused on scientific collaborations, new types of biological mechanisms and targets, genomics, transcriptomics, proteomics, and all the other -omics. But the one omics they haven’t focused on is economics, new ways of structuring biopharma businesses and financing them. This challenge also offers tremendous opportunities for applying the tools of modern financial engineering to biomedicine and getting investors to think differently…. By adopting a portfolio approach to biomedical R&D, we can lower the cost of capital, increase the amount of funding, and get new and better therapies to patients faster and cheaper.”

LAFAYETTE, Calif.--(BUSINESS WIRE)--The Journal Of Investment Management (JOIM) and New Frontier Advisors LLC today announced the winners of the 2019 Harry M. Markowitz Award. The winners are finalized by a Special Selection Panel comprised of Nobel Prize Laureates.

The Markowitz Award is sponsored jointly by JOIM and New Frontier Advisors and recognizes the seminal and transcendent impact of Dr. Markowitz’s work as a financial economist and mathematician on both theoretical finance and the practice of asset management. The award was established to honor his legacy and to support future research and innovation in practical asset management. Candidates for the annual award are chosen from among papers published in JOIM in a calendar year. An honorarium of $10,000 is bestowed for the winning paper. Two additional finalist papers receive a Special Distinction Award along with a $5,000 honorarium.

2019 Markowitz Award Winners

This year’s top recognition was awarded to “Funding Long Shots,” by John Hull, Professor of Derivatives and Risk Management at the University of Toronto’s Rotman School of Management, Andrew W. Lo, the Charles E. and Susan T. Harris Professor of Finance and the Director of the Laboratory for Financial Engineering at the MIT Sloan School of Management, and Roger M. Stein, Adjunct Professor at New York University’s Stern School of Business.

John Hull, Andrew W. Lo and Roger M. Stein were named winners of the $10,000 Harry M. Markowitz Award for their paper, "Funding Long Shots."

The award was announced Tuesday by the Journal of Investment Management and New Frontier Advisors in a joint statement.

The paper explores the increasing difficulty in funding long shots, which the authors call investment-related projects with "low probabilities of success, significant delays before cash flows are realized, large initial investments and large payoffs — relative to up-front payments — in the unlikely event of success," according to the statement.

The S&P 500 also closed at a new high, gaining 0.2% to end at 3,289, while the Nasdaq held steady at 9,258.

The gains came as the US and China signed a deal aimed at easing tensions between the two economic giants.

Shares have enjoyed weeks of steady rises, during which markets seemed impervious to bad news.

The three major US indexes rose about 30% in 2019, recording their best year since 2013 despite average earnings growth estimated at a far more modest 1%.

Most analysts are predicting further gains in 2020.

When someone says that another person is intelligent, you pretty much assume that this is a praising of how smart or bright the other person might be.

In contrast, if someone is labeled as being stupid, there is a reflexive notion that the person is essentially unintelligent. Generally, the common definition of being stupid is that stupidity consists of a lack of intelligence.

This brings up a curious aspect.

Suppose we somehow had a bucket filled with intelligence. We are going to pretend that intelligence is akin to something tangible and that we can essentially pour it into and possibly out of a bucket that we happen to have handy.

Upon pouring this bucket filled with intelligence onto say the floor, what do you have left?

On August 5, 2016, Cathay Pacific Flight 905 from Hong Kong was heading for an on-time arrival at Manila’s Ninoy Aquino International Airport when something unexpected occurred. The pilots radioed air traffic controllers and said they had lost GPS (Global Positioning System) guidance for the final eight nautical miles to “runway right-24.” Surprised, the controllers told the pilots to land the wide-body Boeing 777-300 using just their own eyes. The crew members pulled it off, but they were anxious the whole way in. Fortunately, skies were mostly clear that day. The incident was not isolated. In July and August of that year, the International Civil Aviation Organization received more than 50 reports of GPS interference at the Manila airport alone.

In this episode of Bold Voices, John Doyle, Global Healthcare Innovation Lead, sat down with Dr. Andrew Lo, Professor at the MIT Sloan School of Management and director of MIT’s Laboratory for Financial Engineering, to discuss innovative solutions that better address affordability and increase patient access to breakthrough medicines.

“In this country, we've used the inflammatory term ‘death panels' to hamper, frankly, the discussion that needs to happen with regard to drug pricing,” says Andrew Lo, a professor of finance at MIT Sloan School of Management.

The markets and investing have been compared to Darwinian selection and evolution by a number of observers (e.g., Jonathan Burton, 2009; Chris Dillow, 2014; Andrew Lo, quoted by Peter Dizikes, 2017; Charles Munger, quoted by Lee Kuan Yew, 2017; Justin Kuepper, 2019). Andrew Lo of MIT's Sloan School of Management has written a thorough and illuminating book on the subject, laying out an argument for a behavioral investment theory that can serve as a better explanation of market behavior than mere random walk theory alone (Andrew Lo, 2017; Adaptive Markets: Financial Evolution at the Speed of Thought; Princeton University Press, Princeton, NJ, 483 p.).

People in the Massachusetts biotechnology sector figured that the record-setting success of 2018 would be hard to match. So far, they're proving right.

After collectively raising $4.8 billion of venture capital last year, an all-time high, Bay State biotechs are on pace to raise less than $3 billion in 2019, according to a report published Tuesday by the Massachusetts Biotechnology Council, a leading industry group.

Elizabeth Steele, MassBio's vice president of programs and global affairs, said the venture climate is merely "coming back to normal" after an "insane" 2018. A total of about $3 billion would be in line with the average from 2015 to 2017.

But Andrew Lo, a biotech investor who directs the MIT Laboratory for Financial Engineering, said he is "a bit more concerned."

Los profesores de negocios y finanzas que preparan a sus estudiantes para futuras carreras en la banca también están viendo la tendencia. Científico de datos es la "función más importante" ahora para los empleadores, asegura Andrew Lo, director del Laboratorio de Ingeniería Financiera de MIT en Cambridge, Massachusetts.