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.