Sept. 11, 2006 — On Wednesday, Sept. 13, and throughout the coming academic year, University of Utah students will have the chance to earn while they learn. Students in the “Introduction to Investments” 3050 course-as well as U student volunteers-will discover how financial markets work by trading real securities within a two- to three-hour time period-and get paid according to their performance. Earnings vary-averaging from $20 to $30 an hour.
The stock-market-like experiments, conducted every two to three weeks by the University’s Laboratory for Experimental Economics and Finance (UULEEF), are led by UULEEF creator Elena Asparouhova, assistant professor of finance, and are patterned after a similar program at Caltech. Recently awarded a $120,000 grant from the National Science Foundation, the experiments use programs, computers and statistical data to simulate financial markets. Since 2004, the year Asparouhova ran her first experiment, about 400 students have participated in UULEEF, usually in groups of 20 to 25.
“There are quite a few labs for experiments throughout the United States, but they are hosted by science, accounting or economics departments,” says Asparouhova, a Bulgarian who recently attained U.S. citizenship. “But there are not very many labs hosted by finance departments, maybe only three or four in the whole country.”
During experiments, students monitor their progress by checking a live Web site, which reports real-time and updated earnings of the three stocks-“Alpha,” “Beta” and “Note.” Asparouhova explains that she limits the trading to three securities. “Having too many is no favor to the students, as trading slows down and there are no additional insights gained by having those extra stocks,” she says.
Asparouhova explains that because the experiments are controlled, therefore enabling her to predict final distributions, she and her students are able to anticipate more precise results than advisors evaluating real world data.
Asparouhova, who was honored by the European Finance Association last weekend in Zurich, Switzerland, for “best paper” published in “Review of Finance,” conducts experiments for her investments class, but also runs experiments in which (only) U students from all disciplines participate.
Asparouhova hopes other U instructors can leverage her research. A newly-purchased, powerful server is now in place, and installation of the market software will follow in the next few weeks. Says Asparouhova: “The new server and software is very important for the use of experiments in the classroom.
“Students love experimental finance, because it”s fun and they get paid for it,” Asparouhova says, adding that students in her class have two UULEEF experiments. Other U student volunteers can participate as many times as they want, although Asparouhova usually does not have more than two or three projects a year.
Vladislava Vucetic, a senior honors finance student from Serbia, took the Investments 3050 class and participated in UULEEF last fall. Now she assists Asparouhova, helping set up lab computers and answering students’ questions.
When I first participated in the lab as a student, only a few people attended, and no one wanted to make risky trades. With so little trading, there wasn’t an opportunity to earn a lot-so the average was $8, and I earned $12, which was the highest,” says Vucetic, who wants to be a finance professor. “But another time, at least 50 people showed up and the average was $45, which shows you how important trading volume is. Some earned between $50 and $65 an hour. They were thrilled. And because they trade in fictional currency, they are always surprised by the amount they make.
“Before the markets research, I didn’t know how trading between traders and dealers worked. This helped me understand how it worked-the bid and ask; to find low and sell high-while at the same time I was learning the same concepts in the class,” says Vucetic.
Recent University accounting and finance graduate Scott Hallows, now an accountant, took Asparouhova’s class two years ago and participated in the experiments, averaging $15 an hour. As finance major, he probably had a bit of an advantage, he says. “Most people haven’t taken any finance so they’re not sure how to calculate the price-so they’re buying a stock that’s overpriced or selling it too low. I was sitting next to a philosophy major who had no clue what she was doing. It looked like she was struggling, so I’m not sure how much cash she walked away with.”
Hallows says when it comes to trading, “You have to be really quick to enter your buy order, before someone else does. It helps to know the computer program and be quick with your responses.”
Next week’s UULEEF experiment will be held on Wed., Sept. 13, in the Marriott Library’s Multimedia Center, room 1754, at 4:30 p.m. (Time to be confirmed on Monday, Sept. 11.) The next UULEEF experiment will be held a week later, on Sept. 20.
For more information on UULEEF, or to register to participate, visit http://uuleef.business.utah.edu/ or call UULEEF, call 801-587-3975.