The three-year, $1 million research project will be led by Andrew W. Lo, designated as the Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management. He is also director of the Laboratory for Financial Engineering (LFE), where the research effort will be conducted.
Natixis says it will also provide Lo and the LFE researchers with access to data from its global Investor Insights surveys of individuals, financial advisers and institutions, now in the fifth year and containing responses to more than 500 survey questions by more than 30,000 participants.
“The research we’re funding at MIT will lay the foundation necessary to revolutionize traditional investment strategies designed to help investors build better portfolios and increase their chances of long-term success,” says John Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia, based in Boston. “It’s time to introduce a new paradigm for investing.”
This new research program will begin by studying the industry practice of using an index as a benchmark and developing a more modern approach to benchmarking based on an individual’s unique circumstances, as well as current market dynamics. As part of this effort, LFE researchers will be developing algorithms to mimic irrational but common investor behavior (e.g., buying high, selling low, and moving to cash for extended periods of time) in an attempt to quantify the systematic mistakes made by investors. This will lead to the third phase of the research involving the creation of new customizable benchmarks and indexes that adapt to changing market conditions and behavioral challenges.
“The Holy Grail of developing automated, customized processes for making better investment decisions is not unique to our times or the financial industry,” said Lo, who is based in Cambridge, Massachusetts. “But what is unique is the confluence of breakthroughs in financial technology, computer technology and institutional infrastructure that makes automated personalized investment management a practical possibility.”