This Week in Business Book: Adaptive Markets with Andrew Lo
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Nov 3, 2017 Andrew Lo, a Professor at MIT Sloan and Director of the MIT Laboratory for Financial Engineering, brings his expertise in adapting financial theories to human behavior. He discusses his Adaptive Markets Hypothesis, which combines finance with biology to explain market dynamics influenced by emotions. Lo emphasizes the importance of risk management and market timing for investors, revealing strategies for navigating downturns and the significance of portfolio diversification. He also explores innovative funding models for cancer research, merging finance with critical healthcare advancements.
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Early Wharton Tech Anecdote
- Jeremy Siegel shared a personal story about his early computing experience with Andrew Lo at Wharton.
- Andrew Lo helped Siegel set up his first IBM computer, which was used to write the first edition of "Stocks for the Long Run."
Markets as Biological Systems
- Markets behave like biological systems, adapting to fear, greed, and changing conditions.
- Adaptive Markets Hypothesis merges efficient markets with behavioral finance for a unified view.
Systemic Risks of Passive Investing
- Passive investing democratized finance but introduced systemic risks from synchronized investor behavior.
- Large passive fund flows could cause market stress during mass exits.
