Learn More About Andrew W. Lo
Is it irrational to assume that markets behave rationally? This seemingly obvious question prompted renowned MIT economist Andrew Lo to rethink the efficient markets hypothesis, a cornerstone of modern financial theory that is often disputed. Seeking to reconcile human behavior with market efficiency, he was led down an unexpected path to studying behavioral finance, psychology, cognitive neurosciences, artificial intelligence, bounded rationality and, ultimately, evolutionary biology and ecology.
In his acclaimed book “Adaptive Markets: Financial Evolution at the Speed of Thought” (Princeton University Press, May 2017), Lo shares the groundbreaking framework that emerged from his deep research, which explains how markets and financial institutions adapt to changing environments just like living species do.
“The Efficient Markets Hypothesis assumes that prices fully reflect all available information. But as we now know there’s a wide gulf between human behaviors on one end of the spectrum and efficient markets on the other. This debate has been a tremendous source of friction between industry and academia,” explains Lo, a widely respected financial scholar whose latest book, “In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest” (Princeton University Press, August 2021), gives readers an inside look at the lives of ten of the most prominent figures in the finance world. “The Adaptive Markets Hypothesis is meant to reconcile these two schools of thought in a framework that allows both to reflect their incredibly important contributions to what we experience in the real world.”
The Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management who was named one of World’s 100 Most Influential People” by TIME, Lo is a sought-after advisor, speaker and educator. Director of MIT’s Laboratory for Financial Engineering, his work centers on helping organizations in every sector — including his own — more precisely measure potential outcomes, even in areas where mathematics is not traditionally used. Inspired by his own family struggles with access to cancer treatments, Lo is particularly focused on bridging the gap between science and finance by helping health care institutions, drug companies, and biotech founders improve patient outcomes as well as their bottom lines.
“For the last 10 years, I’ve become increasingly convinced that finance is both misunderstood and misused in many contexts,” explains Lo, who is also a research associate for the National Bureau of Economic Research and sits on the boards of several major corporations. “That’s one of the reasons why we have bad outcomes, as in the 2008 financial crisis, and as we see in industries like health care. The pandemic offered us a new way to look at financial markets and an opportunity to prepare for the future.”
Lo is equally passionate about showing companies that it is possible to “do well by doing good,” emphasizing that finance can be tremendously powerful when used properly, but it can also be a dangerous weapon if incorrectly applied. His framework for determining the correlation between impact investing and individual stock performance illustrates how financial engineering can help solve big problems like climate change, chronic diseases and future pandemics. He also co-developed socially responsible investing (SRI) and environmental, social and governance (ESG) frameworks that can be applied to institutional portfolios.
“In investing, as in evolutionary biology, people are motivated by self-interest and they make mistakes, but they adapt and learn from them,” Lo adds. “Looking at financial markets as an ecosystem allows us to understand the relationship between investment performance and various types of investor behaviors. We may not be able to time the market day to day, but we can certainly identify behavioral trends over longer holding periods.”
Andrew W. Lo is founder of AlphaSimplex, an asset management company, BridgeBio Pharma, a biotechnology company focused on developing therapies for genetic diseases, and QLS Advisors, a health care analytics and advisory company focused on applying data science and artificial intelligence to managing biomedical portfolios. He has published numerous articles in finance and economics journals, authored several books and won numerous awards and fellowships for his teaching, writing and research. He serves as a board member, director or advisor to several prestigious organizations. He received a B.A. in economics from Yale University, an A.M. and Ph.D. in economics from Harvard University, and he was an assistant and associate professor of finance at the University of Pennsylvania’s Wharton School from 1984 until 1988, when he joined MIT.
Andrew W. Lo is available to advise your organization via virtual and in-person consulting meetings, interactive workshops and customized keynotes through the exclusive representation of Stern Speakers & Advisors, a division of Stern Strategy Group®.