FINAN 6410 - Financial Markets Laboratory

Financial economics is rather abstract and mathematical, and its value is difficult to ascertain from merely observing real-world financial markets, which operate in a complex environment where many key variables either remain unobserved or cannot be measured reliably. in this class, students will learn about the theory of finance through participation in a series of online market trading sessions. Simultaneously, students will gain invaluable experience while trading in different roles across different market structures. Students will thoroughly prepare for each trading session, and results from the trading sessions will form the basis for the lectures on the theory. Topics covered: Continuous Open Book Systems, Call Markets, Market Equilibrium, Pareto Optimality, Capital Asset Pricing Model, Contingent Claims, Risk-Neutral Probabilities, Performance Evaluation (Alphas, Betas, and Sharpe Ratios), Hedging, rational Expectations, Income Smoothing, Consumption Beta, Prices and Fundamentals, return Predictability, Self-Fulfilling Expectations, Efficient Markets Hypothesis, Information Aggregation, Bertrand Competition, Decentralized (Over-The-Counter) Markets, Information Percolation, Adverse Selection, Default, Credit Spread and Leverage, Pooling and Separation, Insurance Premium and Deductible, Insurance Mandate, Asset-Backed Securities, Credit Rollover, Bubbles and Crashes, and Bank Runs. Grading will be based on a mixture of trading performance, quizzes and tests.