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.
Alpha is the long-established measure of investment performance. But Andrew Lo has come up with a new twist on the metric.
He calls it dynamic alpha, and it tells you over what time horizon an individual investor or trading model does best.
Lo, who is an academic and investor, believes quant managers could use the measure to mould strategies to trade at the most effective frequency. Pension funds and insurers could use it to ensure diversification across investment styles.
"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..."
The European Securities and Markets Authority said in a statement that short sales—negative bets on stocks—would be curtailed in France, Belgium, Italy, and Spain. Andrew Lo says that it is impossible to know whether the panic of 2008 would have been worse without the ban, but general studies of short-selling have found that bans on that activity can lead to more volatility in the market and lower trading volume.
Hedge funds are facing increased obstacles, of which the regulatory requirements are just one. MIT Sloan Professor Andrew Lo says "weighed against the economic value hedge funds arguably create through the more efficient allocation of capital, must also be set the systemic risks which their herdlike and short-termist behaviour create."
In this article, the question posed is "are hedge funds good for you?". MIT Sloan professor, Andrew Lo says: "Hedge funds are the tip of the spear when it comes to new investment opportunities. They are also the canary in the coal mine when things start to break down."