Physiology of Trading: Andrew Lo

After his initial experiments, Lo conducted the same test with students in the MIT Sloan classroom, and one of the students, curiously, tested the same as the bond traders had. Only afterward did Lo and the class discover that the student had been a bond trader for five years before coming to MIT Sloan. Serendipitously, this classroom experiment confirmed Lo's theories, and he was able to file a patent. Lo also collaborates with Tomaso Poggio in MIT's Brain and Cognitive Sciences group on artificial neural networks for options pricing. They plan to monitor the brain waves of traders as they transact deals while lying inside a magnetic resonance imaging machine.

Tanya Styblo Beder, chairman of the International Association of Financial Engineers, considers Lo a trailblazer in a largely unexplored field. “Dr. Lo's work in the foundations of technical analysis and his empirical studies of the stock market are tremendously valuable to investors and investment managers.”

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