Awareness of threats to global financial stability rose to unprecedented heights in the aftermath of the crisis of 2008-’09. Prodigious volumes of research have ensued, influencing analytical and monitoring approaches that continue to recast the way banks and other financial companies are regulated as well as those institutions’ sensitivity to systemic impacts on their business. There are, indeed, official bodies with systemic risk management responsibilities, engaged along with regulators, academics and other experts in the ongoing search for new ways to monitor and prepare for systemic risks to financial stability.

"On the 15th March 2016, an artificially intelligent (AI) software programme called AlphaGo, defeated the world champion of an ancient board game called Go. The game is immensely complex, with a total combination of possible moves numbering several hundred orders of magnitude more than the number of atoms in the universe. Winning the series four-to-one, AlphaGo’s victory was emphatic. It also showcased significant advances in AI’s ability to recognise obscure patterns, learn new ones and adapt strategies to changing circumstances.

"Yet, just two weeks after AlphaGo’s impressive victory, a new chatbot called Tay, exposed a darker side to AI. Designed to engage in friendly conversation with people online and assist them with Microsoft services, Tay’s unique design feature was that “she” learns from her online interactions. Upon Tay’s public release a coordinated barrage of abuse and incessant trolling by Twitter users, taught Tay the wrong lessons. The programme was corrupted into spewing racist, sexist and xenophobic comments, revealing the potential for flaws in the design and programming of AI, as well as the uneasy interaction between artificial intelligence and the natural kind..."

"Risikoaversion ist eine der zentralen Annahmen der Wirtschaftswissen
schaften, aber auch eine grundlegen de Eigenschaft menschlichen Verhaltens. Trotz umfangreicher Forschung ist wenig über Nutzenfunktionen oder über die Gründe für unterschiedliche Risikopräferenzen von Individuen oder Gesellschaften bekannt."

[Risk aversion is one of the central assumptions of economics, but also a fundamental property of human behavior. Despite extensive research, little is known about the benefits or features of the reasons for different risk preferences of individuals or companies]

"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..."

"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..."

The interaction between governance, culture and performance is increasingly a topic around asset owner board tables. But little has been written about the relationship between culture and the financial crisis, and how to change culture in financial services organisations. Andrew Lo, professor of finance at MIT, has come up with a proposal to change culture by drawing on traditional risk management protocols used at major financial institutions.

Why do people do bad things at work? A recent paper out from Andrew Lo, a finance professor at MIT's Sloan School of Management, suggests it might be a lot more about the corporate culture than the individuals themselves.

Andrew Lo, finance professor at MIT, combines economics, psychology and evolutionary biology to develop models that maximize returns in bull markets and sidesteps losses in panics.

With rising interest rates hurting bond prices, investors and financial advisers are scrambling for other options to provide stability to their portfolios. Some of them have turned to "alternative" funds, many of which claim to offer bond-like stability without exposure to interest-rate rises. Alternative funds use hedge-fund-like strategies to try to capture returns that aren't tied to broad markets. Some funds use options to limit their market exposure, for example, or place bets that certain stocks will drop in value. Professor Andrew Lo comments on the use of alternative funds.

The financial crisis was, among other things, a data failure. Now the Treasury’s Office of Financial Research is trying to use data to create an early warning system for risk.

Andrew W. Lo and his coauthors (Robert C. Merton, Monica Billio, Mila Getmansky, Dale Gray and Loriana Pelizzon) discuss the interconnectedness of global markets and the need for policy integration in a Financial Analysts Journal piece, “On a New Approach for Analyzing and Managing Macrofinancial Risks,” which appears in the March/April 2013 issue. Abby Farson Pratt, assistant editor at CFA Institute, recently talked with Lo about his team’s research as part of a series of FAJ author interviews.

After a global economic slump caused by seemingly reckless financial market activity, a period of calm might appear welcome. But moribund markets spell bad news for bank employees, and schadenfreude by others would be misplaced if they were being lulled into a false sense of security.

Economist and finance professor at M.I.T.'s Sloan School of Management, challenges a core idea of financial theory: that markets are "efficient," meaning there's no point in trying to time your moves in and out of stocks, since everything you could know about them is already baked into the price.

MIT Finance Professor Andrew Lo discusses the volatility of volatility. He speaks with Adam Johnson and Alix Steel on Bloomberg Television's "Street Smart."

The MIT/Sloan School of Management professor and Director of MIT’s Laboratory for Financial Engineering has been widely quoted on the implications of the 2008 financial crisis. One theme that Dr. Lo emphasizes repeatedly is that the risks associated with different asset classes can vary dramatically over time and for this reason, risk must be tracked, forecasted and budgeted.