A Computerized Management Game for Stock Market Simulation

Student Name: R. Unni Krishnan

A financial game simulating an order driven stock market like NYSE was developed in this project over the Internet. Any number of players could participate in the game. Initially every player was provided with same capital and 60 seconds to build inventories on a ``first come first serve'' basis, from a list of 15 stocks, with each scrip having 100 shares. These 15 stocks were judgmentally chosen from the list of well-traded, stable stocks in NYSE. Initial prices of these stocks were posted as their closing prices in NYSE on a certain day. Then the game continued for 30 minutes through trading of these shares by matching limit orders. That is, shares could be bought only if someone was selling it and the ask price of the seller was less than or equal to the bid price of the buyer, with the transaction going to the highest bidder from the seller with the lowest ask price, in case of multiple buyers and sellers. This was nothing but the natural occurrence of the bid-ask spread. A buy/sale order remained live till a transaction took place on this order, and all players had this information on buy/sale orders at all points of time. To encourage investment and mimic inflation, cash holdings of the players were exponentially depreciated continuously through out the game. To introduce volatility, the ``true'' values of stocks during the 1800 seconds of the game, were assumed to be same as the 1800 consecutive closing prices of the respective stocks in NYSE following the day used for posting the initial prices during the inventory building period of the game. Though this concept of volatility was revealed to the players, the exact values of the series remained unknown to them. Sum of the depreciated cash holdings and the value of the portfolio of stock holdings, computed using the ``true'' values of the stocks, were used to calculate instantaneous wealth of a player, which was shown to be integrable and integral of this instantaneous wealth over 30 minutes, defined as ``Total Wealth'', was used to give a score and rank order the players. The developed game could serve as a very useful tool in data collection in experimental finance, apart from an educational vehicle for students in stock market investment.