Yesterday, at the Isenberg School of Management, we were treated to brilliant talks and discussions at the Center for International Securities and Derivative Markets (CISDM) Research Day!
The event from 11:30AM until 4:30PM was organized by my great Finance colleague, Dr. Mila Sherman.
Two of the talks: "Can Financial Engineering Cure Cancer? A New Approach to Funding Biomedical Innovation" and "Lies my Finance Professor Told Me: Reconciling Efficient Markets and Behavioral Finance via Evolutionary Biology and the Cognitive Neurosciences" were given by the Finance Superstar, Dr. Andrew Lo, of the MIT Sloan School.
I have heard Professor Lo speak on several occasions because we had hosted him before and I have spoken at various venues with him in both NYC and Chicago. Mila and I were in the Network Analysis segment of the latter conference which was on Measuring Systemic Risk.
He is brilliant and in his financial engineering and curing cancer presentation (on which I took copious notes) he noted that if we could create a fund of $30 billion we should be on our way to curing cancer - the strategy should be, as in finance, to diversify the portfolio and enable the investigation of multiple pathways with 150 cancer compounds, for example. NIH cannot support all the cancer researchers out there!
Who has not been affected by cancer, whether individually or through having a relative or friend suffering from the disease. Andrew noted that his mother died of cancer and my dissertation advisor at Brown University, Dr. Stella Dafermos, also died of cancer at age 49 back in 1990. She was a genius. We know so much now how cancer and other diseases work at the molecular level and have had amazing drug discoveries such as Gleevec and Avastin but the right investments and financial support are needed. He noted that no new Alzheimer's drugs have been introduced in the past decade!
The business model of pharma is broken and the economic risk has increased. Private equity is not ideal for the financing of drug discoveries. We need to get the funds into the system to finance drug development and use financial engineering and securitization.
He also spoke about orphan (rare) diseases and associated drugs and innovations and that business models for those work - pricing of certain drugs, however, is another issue.
Dr. Lo emphasized: Doing Well with Doing Good . All the Operations Research folks out there will recall one of our profession's themes of Doing Good with Good O.R. (Operations Research).
My research group at the Supernetworks Center at the Isenberg School has written several papers on the pharmaceutical industry with a focus on competitive supply chains. Hence, his first talk was especially thrilling and intellectually captivating. Our paper: Pharmaceutical Supply Chain Networks with Outsourcing Under Price and Quality Competition, Anna Nagurney, Dong Li, and Ladimer S. Nagurney, International Transactions in Operational Research 20(6): (2013) pp 859-888, focuses on quality issues. Our paper, A Supply Chain Generalized Network Oligopoly Model for Pharmaceuticals Under Brand Differentiation and Perishability, Amir H. Masoumi, Min Yu, and Anna Nagurney, Transportation Research E 48: (2012) pp 762-780, investigates even the impact of the loss of patent rights and competition from generics.
In his second talk, Dr. Lo emphasized how insights from evolutionary biology and neurosciences can reveal human decision-making behavior and what it means for financial decision-making as well. I loved the interdisciplinarity of his talks - bringing biological insights to economics and finance. He is a true Renaissance man and incredibly inspiring. He noted that rationality is the delicate balance between emotion and logic and stated that wisdom of crowds works, unlike the madness of mobs!
I very much appreciated his adaptive market hypothesis and how this concept differs from the efficient market hypothesis. Lo also recognized the 3 recent recipients of the Nobel Prize in Economic Sciences - Drs. Fama, Shiller, and Hansen, and how the media emphasizes the disparities and different perspectives associated with them.
The other two talks were given by my wonderful Finance colleagues, Dr. Bing Liang, who spoke on "Hedge Fund Ownership and Stock Market Efficiency" and Dr. Hossein Kazemi, who gave the last presentation of the day on "Dynamics of Hedge Fund Exposures: Implications for Performance and Herding."