“The parallels between video games and day trading is becoming closer and closer,” says Andrew Lo, a finance professor at Massachusetts Institute of Technology. “For many gamers, particularly the younger ones who are not used to trading and don't fully understand the impact of significant losses and gains on their psychophysiology, it could have some significant adverse consequences.”
One thing we’ve learned from the Covid-19 crisis is that there can be a conflict between resilience and optimisation. If, for example, the NHS had had lots of spare beds, ventilators and PPE equipment before the pandemic began it would have been more resilient and better able to cope with the crisis. But this would at the time have appeared sub-optimal, as these resources would have been wasted for months.
Many public nonprofit organizations (NPOs) are turning to their endowments to survive the economic crisis caused by the COVID-19 pandemic.
Yet, little is known about which NPOs have endowment funds and how they invest. A new paper by MIT Sloan School of Management Prof. Andrew W. Lo and Visiting Prof. Egor Matveyev sheds light on the “black box of endowments,” revealing that bigger funds and NPOs with stricter governance generate higher returns.
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.
At the height of the credit crunch in 2008, academics at the London School of Economics were infamously caught off guard when the Queen of England asked why no one saw the financial crisis coming. Now, 10 years after the collapse of Lehman Brothers Holdings Inc. on Sept. 15, 2008, economists, regulators, policymakers and finance industry insiders are asking themselves where the next financial crisis could come from, and what danger signals they should watch for, to avoid being blindsided again.
While there are several areas of potential concern, industry experts broadly do not believe a systemic collapse on the same scale of 2008 is on the horizon.
Was it just a communication failure? Or why were the Bush administration and the Obama administration set up the following year so insufficiently prepared to declare themselves a financial crisis in 2008 ?
The financial system has gotten much more complex, but many financial regulations are from the 1930's and 40's, notes Andrew Lo, professor at the MIT Sloan School of Management. Lo helped come up with the idea for the U.S. Office of Financial Regulation, which was created by the 2010 Dodd Frank Act. Nonetheless, much of Dodd Frank is way too long and difficult for anyone to understand, Lo contends. 'That wasn't so much an update as it was a piling on of new regulations,' Lo says of Dodd Frank.
A professor of finance at MIT, Andrew W. Lo is an editor of the RSF volume Rethinking the Financial Crisis. The volume addresses important questions about the complex workings of American finance and shows how the study of economics needs to change to deepen our understanding of the financial sector.