You’re probably paying more for your car loan or mortgage than you should – Christopher Palmer

MIT Sloan Assistant Professor Christopher Palmer

From The Conversation

The Federal Reserve makes headlines from New York to Hong Kong anytime it lifts its benchmark interest rate. Rightfully so, as any increase tends to drive up borrowing costs on everything from credit cards to auto loans and mortgages.

There’s a more important factor that determines how much you’ll pay when you borrow money to buy a car or home, and it’s entirely in your hands: it’s the lender you choose. That’s because how much a lender might charge you for a loan can vary dramatically from one to the next. That’s why it pays to shop around.

My research on auto loans shows that most consumers don’t do that, which can cost them hundreds or even thousands of dollars over the life of a loan or lead them to purchase a lower-quality car than initially planned. Fortunately, it’s pretty easy to avoid that.

Bargain hunters

Most of us shop until we drop for price bargains on clothes, computers or virtually anything else. With the internet, finding the best deal among products and companies is easier than ever. Read More »

Pinpointing which firms fudge earnings numbers and why – Delphine Samuels

MIT Sloan Assistant Professor, Accounting Delphine Samuels

From The Hill

It’s widely assumed that executives are less likely to inflate their earnings when they work at high profile companies that operate under a good deal of regulatory oversight.

Yet it’s also widely known that managers in high-profile companies face tremendous pressure from investors to meet or beat Wall Street estimates every quarter, which incentivizes them to overstate their company’s performance.

How should policymakers looking to curb accounting fraud reconcile these countervailing forces? My colleagues —Daniel J. Taylor and Robert E. Verrecchia, both at the University of Pennsylvania’s Wharton School — and I set out to answer that question. Read More »

Business Books podcast: “adaptive” markets – Andrew Lo

MIT Sloan Professor Andrew Lo

From Financial Times

The adaptive markets theory is a “reframing of our view of financial markets”, says Andrew Lo, author of Adaptive Markets: Financial Evolution at the Speed of Thought.

In the fifth episode of the Business Books podcast, hear Lo, shortlisted for the Financial Times & McKinsey Business Book of the Year Award, in conversation with John Authers, the FT’s senior investment commentator.

Rather than looking at markets as a mechanical system with laws of motion, Lo’s hypothesis takes the view that markets “are a human endeavour and as a result are subject more to laws of biology than physics”. What is the future for markets?

Read the full post and listen to the entire podcast at Financial Times.

Andrew W. Lo is the Charles E. and Susan T. Harris Professor, a Professor of Finance, and the Director of the Laboratory for Financial Engineering at the MIT Sloan School of Management.

Imagine If Robo Advisers Could Do Emotions– Andrew Lo

MIT Sloan Professor Andrew Lo

MIT Sloan Professor Andrew Lo

From the Wall Street Journal

At a conference last year, I was approached by an audience member after my talk. He thanked me for my observation that it’s unrealistic to expect investors to do nothing in the face of a sharp market-wide selloff, and that pulling out of the market can sometimes be the right thing to do. In fact, this savvy attendee converted all of his equity holdings to cash by the end of October 2008.

He then asked me for some advice: “Is it safe to get back in now?” Seven years after he moved his money into cash, he’s still waiting for just the right time to reinvest; meanwhile, the S&P 500 earned an annualized return of 14% during this period.

Investing is an emotional process. Managing these emotions is probably the greatest open challenge of financial technology. Investing is much more complicated than other chores like driving, which is why driverless cars are already more successful than even the best robo advisers.

Despite the enthusiasm of tech-savvy millennials—the generation of investors now in their 20s and 30s who are just as happy interacting with an app as with warm-blooded humans—robo advisers don’t take into account the limits of human cognition; they don’t make allowances for emotional reactions like fear and greed; and they can’t eliminate blind spots. Robo advisers don’t do emotion. When the stock market roils, investors freak out. They need comfort and encouragement. During last August’s stock-market rout, Vanguard Group told The Wall Street Journal it was “besieged” with calls from jittery investors and had to pull volunteers from across the company to handle the call volume.

But what if a robo adviser could identify the precise moment you freak out and encourage you not to sell by giving you historical context that calms your nerves? Better yet, what if this digital adviser could actively manage the risk of your portfolio so you don’t freak out at all?

Imagine if, like your car’s cruise control, you can set a level of risk that you’re comfortable with and your robo adviser will apply the brakes when you’re going downhill and step on the gas when you’re going uphill so as to maintain that level of risk. And if you do decide to temporarily take over by stepping on the brakes, the robo adviser will remind you from time to time that you need to step on the gas if you want to reach your destination in the time you’ve allotted. Instead of artificial intelligence, we should first conquer artificial emotion—by constructing algorithms that accurately capture human behavior, we can build countermeasures to protect us from ourselves.

Robo advisers have great potential but the technology is still immature; they’re the rotary phones to today’s iPhone.

Marvin Minsky, the recently deceased founding father of artificial intelligence, summarized the ultimate goal of his field by saying that he didn’t just want to build a computer that he could be proud of, he wanted to build a computer that could be proud of him. Wouldn’t it be grand if we built a robo adviser that could be proud of our portfolio?

See the post at  WSJ “The Experts” 

Andrew W. Lo is the Charles E. and Susan T. Harris Professor at MIT Sloan School of Management, director of the MIT Laboratory for Financial Engineering, principal investigator at MIT Computer Science and Artificial Intelligence Laboratory, and chief investment strategist at AlphaSimplex Group.

 

 

Twitter Chat: #MITFinTechLatAm – Lee Ullmann, Pablo Wende, Ariel Arrieta

Lee Ullmann, director de la Oficina para América Latina de MIT Sloan

Pablo Wende, economista y periodista de Infobae y conductor de “Pablo y a la Bolsa” por FM Milenium

Ariel Arrieta, mercadólogo, emprendedor serial, co-fundador y socio administrador de NXTP Labs

¿Cuáles son las tendencias en cadena de bloques (blockchain), criptomonedas (cryptocurrency), ciberseguridad y gestión automatizada? ¿Cuál es el futuro de FinTech en Argentina y Latinoamérica?

Únanse para una conversación entre Lee Ullmann (@MITSloanLatAm), director de la Oficina para América Latina de MIT Sloan; Pablo Wende (@PabloWende), economista y periodista de Infobae y conductor de “Pablo y a la Bolsa” por FM Milenium; y Ariel Arrieta (@aarrieta), mercadólogo, emprendedor serial, co-fundador y socio administrador de NXTP Labs (@NXTPLabs). Platicaremos sobre las nuevas tendencias e innovaciones en materia de fintech.

La plática por Twitter tendrá lugar el 22 de mayo desde las 15:00 hasta las 16:00 ART (2:00 – 3:00 PM ET).

¿Cómo pueden participar? ¡Es sencillo! Si tienen una pregunta, respuesta o comentario, simplemente incluyan #MITFinTechLatAm en sus Tweets.

La conversación en Twitter es un precursor de la conferencia “Transformando la revolución del FinTech” organizada por la escuela de negocios MIT Sloan junto a la organización empresarial IDEA. Tendrá lugar el 29 de mayo en Buenos Aires, Argentina. La conferencia reunirá a investigadores y líderes de instituciones gubernamentales y presentadores. Entre ellos buscarán destacar las numerosas formas en que la incipiente tecnología financiera está alterando diversos segmentos del mundo financiero, entre ellos, monedas, títulos valores, préstamos, pagos y gestión patrimonial.

En promoción de las ideas de la conferencia, tendremos una conversación en Twitter sobre el futuro de FinTech en Latinoamérica, así como otras ideas de interés a tratarse en la agenda.