Concordia Journal Home > Archives > March 6, 2008 issue >

Class Action 

By Dawn Wiseman

Gregory Lypny (Finance) believes that education is not about training, “it’s about teaching students how to think,” how to look at theory and make connections to real life, how to explain what’s happening when theory does not hold. To support students in the development of these key skills, he wanted “to inject a lot more research” into his courses, and so he developed Borsa.

This online experimental market is open two weeks every term, and allows students in MSCA 601 (a graduate course in Financial Economics), COMM 220 (an undergraduate course in Analysis of Markets), and a Grade 12 economics class at Lower Canada College to become buyers and sellers of sought-after assets X and Y.

As Lypny explained, for the two weeks of trading, students are experimental subjects.

Each starts with the same number of units of X and Y, as well as electronic cash so they can make initial purchases. One asset represents a fairly safe investment (like savings bonds) and pays out dividends at a fixed rate. The other is usually a riskier investment (like Nortel stock), with dividends that can vary over time, based on a number of factors.

Once trading begins, the unit price for each asset is determined by the market, just as in real life.

One trader will offer to sell so many units of an asset and name a price. Another trader will offer to buy, but at a lower price. As actual trades are made between students, the price of each asset fluctuates based on how much people are willing to spend.

“Their trading defines the market,” Lypny said. “It can go as high, or as low, as they are willing to go.”

To encourage participation (the session is worth only five per cent of the final class mark), Lypny offers small monetary prizes for the top three earners. Last semester, a student from COMM 220 placed first, one from LCC second, and a graduate student from MCSA 601 third.

“One of the lessons they learn is that better theoretical knowledge does not necessarily help you with the game,” he smiled. “That’s one of the reasons it counts for such a small percentage of the final grade.” The big winners are usually students who “take advantage of other people’s ignorance early on in the trading.”

While the competition is fun, more exciting for Lypny is what comes afterwards, when students shift from subject to scientist. “The program saves all data,” he explained. “Each term we’re generating fresh, original data for analysis.”

Graduate students are asked to analyze the experimental design and methodology to develop a research protocol that could be used as the basis for formal research. For undergraduates, the process is “a little less scary.” Lypny asks directed questions that encourage them to consider how and why results vary from theoretical predictions.

For example, halfway through trading, he often integrates an instance of “risk-shock,” where one asset will become a lot riskier or more secure than it was previously. “There’s all sorts of fancy theories about how that situation should play out in a market,” but in Borsa, none of them seem to apply, probably because the stakes are so low.

Lypny modifies the program in response to student feedback each term. He’s now looking at incorporating credit into the game so that the users can sell short, trading assets they do not own in order to profit from a falling market.

He’s found that Borsa really supports the type of learning he hopes to foster in his classes. Soon he hopes to share the experience with others.

“My ultimate goal is to have it up and running on the web 24 hours a day and open to anyone who wants to use it,” he said. “The broader the market, the less chance we have of insider trading.”