EVENT: Adaptive Markets: Financial Evolution at the Speed of Thought – Professor Andrew Lo, MIT

Tuesday 28th November, 9.00am-10.15am, Committee Room 10, House of Commons

Economists can’t agree on whether investors and markets are rational and efficient, as modern financial theory assumes, or irrational and inefficient, as behavioural economists believe—and as financial bubbles, crashes, and crises suggest.

This is one of the biggest debates in economics and the purpose and value or futility of investment management and financial regulation hang on the outcome. In his ground-breaking book, Andrew Lo cuts through this debate with a new framework, the Adaptive Markets Hypothesis, in which rationality and irrationality coexist.

There has been significant growth in fund managers which use sophisticated computer models to spot opportunities in the markets and use leverage to amplify returns.

Hedge funds are using technology and data to hunt down market inefficiencies and profit from them. But what happens to the predators when the prey is extinct? Why did hedge fund strategies which had proved profitable for years suddenly suffer big losses in a few days in August 2007 during the so-called Quant meltdown?

Professor Lo’s book examines these issues and more including what the Adaptive Markets Hypothesis says about how we can influence the culture of financial firms and regulators.

Professor Lo will explain the Adaptive Markets Hypothesis and what implications it has for the purposes and methods of investment strategy and financial regulation.

Adaptive Markets has been shortlisted for the 2017 Financial Times and McKinsey Business Book of the Year Award

Andrew W. Lo is the Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering. He is the author of Hedge Funds and the coauthor of A Non-Random Walk Down Wall Street and The Econometrics of Financial Markets (all Princeton). He is also the founder of AlphaSimplex Group, a quantitative investment management company based in Cambridge, Massachusetts.

Adaptive markets