Wednesday, September 24, 2014

WOW Harvard Names Anti-Model Statistician to Run Harvard's $36 Billion Endowment

Years after Iris Mack was fired for warning about the dangerous financial derivatives, based on faulty financial models, that were part of the investments in Harvard's endowment, that eventually resulted in billions in losses for the endowment, Harvard has named something of an anti-model statistician to run the endowment.

Stephen Blyth will be the next president and chief executive officer of Harvard Management Company, the University’s investment arm which manages its $36 billion endowment, the Harvard Crimson is reporting.

Blythe, who is currently a managing director and head of public markets at HMC, as well as a professor of statistics, will assume the role Jan. 1, 2015. He will manage the largest university endowment in the world, which, as reported yesterday in HMC’s annual report, currently sits at $36.4 billion.

In his role as a Harvard professor, Blyth has taught Statistics 123: “Applied Quantitative Finance."

The below clip is of a brief talk he gave, where one can sense a good deal of his skepticism about financial modeling (Though during the Q&A, it is clear he is not ready to give it up completely.)

It is also interesting to note that Blyth quotes Keynes on probability (Keynes wrote A Treatise on Probability) in his speech, "The Quant Delusion." He seems to be referencing the difference between case and class probability, which was, of course, much more fully developed by the brother of Ludwig von Mises, Richard, in his book,  Probability, Statistics and Truth.

It is also clear, Blyth has no clue about Austrian Business Cycle Theory. I like his thought on the volatility of an income stream and how much risk someone should take in his investment portfolio,


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