Finance 825 Class Page

Trading and Markets 730/830
Spring Quarter 2008

INSTRUCTOR:	Ingrid M. Werner
OFFICE:	818 Fisher Hall
730 CLASS TIMES:	Mondays and Wednesdays, 10:30-12:18 p.m. in Shoenbaum 319
830 CLASS TIMES:	Mondays and Wednesdays, 1:30-3:18 p.m. in Gerlach 265
OFFICE HOURS:	By Appointment
E-MAIL:	werner@cob.osu.edu
PHONE:	(614) 292-6460

Class Updates
Last Updated: June 2, 2008

Course Outline and Schedule (.pdf)
Brief Course Description (below)
Links to Web-Sites

Slides for First Class

Documents to Download for Registered Students

Schedule with Readings

Slides
Tools

Course Outline

In this course, we describe how today’s financial markets work; how governments and exchanges regulate them; and how traders create liquidity, volatility, informative prices, trading profits, and transaction costs. The course provides an overview of today’s fragmented market for financial securities: securities exchanges, boards of trade, dealer markets, electronic communication networks, Inter Dealer Brokers, crossing networks, the OTC Bulletin Board, and the Pink Sheets. Specifically, we study different market structures: single price auctions, open outcry auctions, screen-based markets, and brokered markets. We study the role of different market participants: investors, brokers, dealers, arbitrageurs, retail traders, buy-side traders (institutions), day traders, rogue traders, and gamblers. We also study different order types: limit orders, market orders, and stop orders; and trading strategies: program trading, basket trading, block trading, and short sales. Finally, we look at the dark side of securities trading: insider trading, front running, market manipulation, and bluffing.

Target Audience

This course is primarily targeted towards students thinking of a career in investment management, securities trading, or the brokerage industry. It is also an excellent course to take for students targeting a career as a financial advisor. However, the course will also be useful for students interested in finance more generally. In the course, we will show that market structure and regulation affect asset pricing, and hence the cost of capital for firms around the world. Students taking this course will most certainly get a “leg-up” on the competition for summer jobs and hopefully also permanent jobs in the securities industry.

Course Goals

There are three main goals for students in this course:

1. To develop a thorough understanding of how securities are traded around the world, how traders (retail and institutional) can minimize their costs of trading, and how market makers can optimally set prices and execute orders.

2. To understand the role of regulation, and how it impacts players in the securities industry.

3. To gain first-hand experience in trading simulated securities and making a market for simulated securities.

Instructor

Ingrid Werner is the Martin and Andrew Murrer Professor of Finance at Ohio State University. She joined the university in 1998. She has also taught at Stanford Business School, at the Wharton School, and at the Stockholm School of Economics. She has an MBA and an Economics Licentiate degree from the Stockholm School of Economics, and a MA and a PhD in Economics from the University of Rochester. Professor Werner does research in international finance and market microstructure. She was the visiting research economist at the New York Stock Exchange in 1997, and the visiting academic fellow at the Nasdaq Stock Market in 2001-2002.

Pedagogy

This course uses a combination of cases, assignments, classroom lectures and discussions to convey the material. Each student is expected to contribute regularly to classroom discussion. This is particularly true when we work with cases, but also during lectures and general discussions. There will be an in-class midterm on April 30, 2008, and a final term paper assignment. Moreover, a significant fraction of the course grade will be based on trading simulations.

Requirements

There are no formal prerequisites for Business Finance 730/830 and the course can be taken either during the first or the second year of the MBA program. However, some exposure to finance is useful because we will be dealing primarily with securities markets. Microeconomics is useful because the notions of supply, demand and economic equilibrium underlie just about every trading situation. Statistics comes in when we need to design strategies in situations involving risk or evaluate performance of existing markets.

Course Evaluation

The final course grade will be allocated according to the following formula:

Individual Classroom Contribution 20%

Trading Simulation 20%

Midterm Exam 30%

Term-paper 30%

Improvement option max(0.30*Midterm+0.30*Term-paper, 0.60*Term-paper)

Term Paper

The term paper can cover any topic in the general area of trading and markets. Suggestions on topics will be provided at a later date. The paper itself should be no more than 15 pages long, including exhibits. Needless to say, it should include proper sourcing of materials, referencing of cited work, etc. The paper should be handed in by the last scheduled class for the quarter, May 28, 2008. Additional information regarding the term paper and suggestions for topics will be provided in mid April.

Trading Simulation

We will use several trading simulations in the course, and your simulation performance accounts for 30% of your grade. The first trading simulation -- Rotman Interactive Trader (RIT) -- is based on a software package designed by the staff in the trading laboratory at the Rotman School, University of Toronto. The second one – UpTick – is based on software designed by Joshua Coval and Eric Stafford at Harvard Business School. Students are encouraged to practice using the RIT software throughout the course. The HBS-based competition day will take place on April 23, 2008. We will devote the class-sessions on May 21 and May 28, 2008 to the RIT simulations. More information about the simulations will be provided during the course.

Course Material

The required textbook is Equity Markets in Action, 2004, Wiley, New York, which is written by Professor Robert A. Schwartz and Reto Francioni. There will also be a packet of cases available from Uniprint. Class-notes and other materials will be distributed via this course web-page.

Class Participation

A substantial portion of your grade (20%) will be based on class participation. Class participation will mainly be graded based on your contributions to case discussions, but general participation in the form of questions and comments during lectures is also welcome and will be rewarded. A combination of cold-calling and soft-calling will be used to maximize participation. Each student will be given ample opportunity to contribute to the classroom discussion. I will monitor contributions daily, and will cold-call students who need encouragement to speak up in class.

Finance Web-Sites:

Leading On-line Brokers:

TD Ameritrade
Charles Schwab
E*trade

Leading Traditional Brokers:

DB Alex Brown
Goldman Sachs
Merrill Lynch
Morgan Stanley
Prudential Financial
Citi Salomon Smith Barney
UBS
Wells Fargo Investments

Leading InvestmentBanks:

Bank of America
Bankers Trust
Brown Brother Harriman & Co
CIBC Wood Gundy
CS First Boston
Deutsche Bank
Goldman Sachs
WR Hambrecht
JP Morgan
Merrill Lynch
Montgomery Securities
Morgan Stanley
Nikko Cordial Securities
Piper Jaffray
Citi Salomon Smith Barney
Sanford C. Bernstein
UBS