Computer-Based Stock Market Game

I set up a computer-based stock market game partly as a means of teaching basic principles of share valuation to undergraduate students of finance, and partly as an adjunct to my research on investor psychology and stock market behaviour. It also encourages use of the Web and Excel spreadsheets.

The game consists of a 'stock market' containing shares in two companies, one of which is a high-risk telecoms company and the other a low-risk retailing company. Students are given background details on the companies, five years of accounts and historic share price movements (all of which are drawn from real companies). Each 'trader' starts the game with a portfolio containing shares in each company plus cash. News items are announced daily and traders decide whether or not to trade. The share prices change each day, reflecting the previous day's news as appropriate. The game lasts for roughly one term and at the end of the game prizes are awarded to traders with the highest portfolio values.

All the information is Web-based. Traders can view the day's prices, the day's news and details of all traders' accounts for the previous two days. There is also a discussion board on which queries can be posted. Trading is done by entering trades in a 'trading account', a simple Excel spreadsheet only accessible by the trader who owns the account.

The game is voluntary and is not part of the formal curriculum. It is open to second and third year undergraduates in the Economics department and is not restricted to students studying finance. Nevertheless, it is designed to increase enthusiasm for the finance courses and teach students how events, such as dividend payments or takeover bids, affect share prices. Response has been good, with positive feedback.

The main problems are computer difficulties. Students must operate their accounts via computers in the Economics department to enable trades to be recorded and trading accounts to be valued and updated. This led to some complaints, partly because high demand for the computers sometimes made it difficult to gain access, and partly because students didn't like having to come into the department to trade. The first problem was solved by increasing the number of computers on which trading could be done. The second problem was considered not to be valid.

Other computer problems involved breakdown. A minor difficulty was the suspension of the discussion board due to a hard disc failure that took a number of weeks to rectify. A more drastic problem was caused by server breakdowns, a hard disc crash on the computer that was programmed to do the daily updating, a bug in Excel and so on. Despite the fact that all macros and updating programs were fully backed up, the difficulties of maintaining daily automised updating were enormous. (The game has now been run for two terms, and these sorts of problems were considerably worse the second time, for no reason other than bad luck.)