Tag Archives: Andrei Kirilenko

Unlocking the modern financial system

Leading MIT Sloan finance faculty share research, ideas with alumni in London

Professor Robert Merton speaks at the MIT Sloan Finance Forum: Financial System 2.0

The financial system is evolving and businesses and regulators need to move quickly to keep pace with the speed of change. That was a key lesson at Financial System 2.0, a special event held in London on June 13 as part of the MIT Sloan Finance Forum series.

Some 200 alumni and friends of the School attended the event, which saw MIT Sloan’s leading academics meet with experts from across the finance industry to discuss the state of the world’s financial markets and how to shape what comes next.

Highlights of the day included:

Professor Stewart Myers look at management incentives and corporate governance. Myers discussed ways to build a functional balance between shareholder remuneration and good company management, including the idea of levying a transaction cost on shareholder intervention.

Professor Andrew Lo’s examination of how financial markets can be harnessed to help cure cancer. Lo explained that a typical cancer drug development program could cost  $200 million, with a success rate of 5 percent. However, instead of investing in one program, it might be possible to invest in 150 different ones, with diversification offering investors more than a 99 percent chance of at least two successes and a higher return on investment. The reduced level of risk resulting from diversification would allow managers of a “cancer megafund” to issue approximately $16.7 billion of debt immediately, Lo said.

“Instead of declaring war on cancer, we should put a price on its head,” said Lo.

A frank discussion, chaired by Financial Times commentator Gillian Tett, on hedge funds and how they are evolving to respond to the shifting financial landscape.

An overview of MIT Sloan’s intensive, one-year Master of Finance program. Launched in 2008, during the financial crisis, the program was developed to put highly-trained graduates to work in the financial sector. MIT Sloan’s goal is to create the next generation of global finance leaders, with a deep understanding of the profession’s potential contributions to society. Graduation data demonstrates that it is succeeding: although the finance sector has seen a general decline in interest, the number of graduates from MIT Sloan’s Master of Finance program continues to grow.

Professor Antoinette Schoar’s demonstration of how to apply insights from behavioral finance in order to mitigate credit risk, particularly in emerging markets. Schoar explained that in many emerging market countries, small businesses regularly pay late and go into default. Behavioral economics suggests small businesses and individuals in emerging economies slip into default through lack of attention to the repayment cycle, said Schoar.

Professor Andrei Kirilenko’s discussion of market evolutions and high-frequency trading. Kirilenko asked whether high-frequency trading is essentially beneficial or “legalized front­running.” He showed that a survey of market participants concluded that high frequency trading had been the cause of the May 2010 “Flash Crash” that saw the Dow Jones Industrial Average dip 9 percent only to rebound a few minutes later.

But Kirilenko shared research showing that high-frequency trading had not caused the crash.

“We should not look at high-frequency trading as being ‘good’ or ‘evil,’” Kirilenko said. “It is more productive to think of it as a trade-off between beneficial and detrimental effects.”

Kirilenko also discussed the new MIT Sloan Center for Finance and Policy, which will serve as a hub for financial analysis of public policy issues and a collaborative platform to stimulate cooperation between government, the private sector, and academia.

Professor Robert Merton’s demonstration of the role connectedness plays in the global financial markets. Merton warned that there is a need to improve integration between the different parts of government with responsibility for managing fiscal policy and promoting stability.

 

View videos from this event here

Andrei Kirilenko, former Chief Economist of the U.S. Commodity Futures Trading Commission, joins MIT Sloan finance faculty

Kirilenko will co-direct the newly created MIT Sloan Center for Finance and Policy

Andrei Kirilenko, Professor of Practice, MIT Sloan

Andrei Kirilenko, former Chief Economist of the U.S. Commodity Futures Trading Commission (CFTC) and a renowned expert on automated financial markets, has joined the faculty of the MIT Sloan School of Management as Professor of the Practice of Finance.

Kirilenko, who was born in Ukraine, began his tenure at the CFTC in 2008 and was appointed Chief Economist in December 2010. That year he was also the recipient of the CFTC Chairman’s Award for Excellence, the agency’s highest honor. Prior to joining the CFTC, Kirilenko spent 12 years at the International Monetary Fund working on global capital markets issues.

“Financial markets and institutions are more interconnected and technologically complex than ever before, but their regulation and oversight are still largely based on Depression-era principles and frameworks,” said David Schmittlein, Dean of MIT Sloan. “Andrei Kirilenko was one of the first to recognize the need for a modern regulatory regime of automated, high-speed markets that is consistent with the functional foundations of computing, and he has been instrumental in its development. His is a leading voice on the financial challenges of our time.”

With colleagues Andrew Lo, head of the MIT Laboratory for Financial Engineering, and Deborah Lucas, Professor of Finance, Kirilenko will co-direct the new MIT Sloan Center for Finance and Policy. The Center will be the hub for a research network in the financial analysis of public policy issues, and serve as a collaborative platform to stimulate cooperation between government, the private sector, and academia. The Center will be officially announced in the coming months.

“Andrei has dedicated most of his illustrious career to public service and, in many ways, his arrival here at MIT Sloan is a natural continuation of that path,” said Lo. “Our faculty has a long history of research that contributes both to the understanding of financial markets and how it influences best practices. In the aftermath of the global financial crisis, we are turning our attention more and more toward ways in which financial analysis should inform public policy. Andrei’s expertise in macroeconomic policymaking and the regulatory landscape are critical in helping us fulfill these ambitions.”

“I am honored to be here,” Kirilenko said. “To overcome the economic challenges we face, we need a new generation of financial industry leaders, policymakers, and regulators who have a deep understanding of how technology drives the financial system. At MIT Sloan, I’m surrounded by an exceptionally smart group of colleagues committed to training this new generation, and by talented, passionate students eager to make a difference.”

Kirilenko is perhaps best known for his role in the investigation of the “Flash Crash” of May 6, 2010, when the Dow Jones industrial average took an unprecedented plunge of almost 1,000 points in minutes before ultimately recovering. The Flash Crash was originally blamed on high frequency trading—a lightning-quick, computer-driven form of trading. According to Kirilenko’s study, high frequency trading did not set off the chain of events on May 6, but did contribute to exorbitant market volatility as the whole market system spiraled out of control.

“Could a Flash Crash happen again? Absolutely—financial markets have become so technologically complex and interconnected that no one really knows how the whole system operates and when it will malfunction again,” he said. “The difficulty is that regulation is backward-looking and is always trying to solve the latest crisis. New solutions require leaders who are forward-looking, and who can anticipate future issues. These new solutions will not have to come from the regulators. I believe there are opportunities for entrepreneurs and for commercial ventures to innovate, and make a more robust financial system that’s less prone to malfunction and abuse. MIT Sloan, with its culture of technology entrepreneurship, is uniquely positioned to play a leadership role in this area.”

Kirilenko’s career has long explored how financial markets work and how they should be regulated. His current academic interests include algorithmic and high frequency trading, machine-learning methods and models, measuring and managing systemic risk, and the design of innovative financial products, such as exchange traded funds.

Kirilenko received his Ph.D. in Economics from the University of Pennsylvania. His scholarly works have appeared in the Journal of Finance and the Journal of Financial Markets among others and have won numerous awards.