Trading and Markets 730/830
Winter Quarter 2012
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INSTRUCTOR: |
Ingrid M. Werner |
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OFFICE: |
700E Fisher Hall |
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830 CLASS TIMES: |
Tuesdays and Thursdays, 10:30-12:18 p.m. in Gerlach 315 |
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730 CLASS TIMES: |
Tuesdays and Thursdays, 1:30-3:18 p.m. in Shoenbaum 219 |
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OFFICE HOURS: |
By Appointment |
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E-MAIL: |
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PHONE: |
(614) 292-6460 |
Class Updates
Last Updated: March 8, 2012
Course Outline and Schedule (.pdf)
Brief Course Description (below)
Slides for
First Class
Documents to Download for Registered Students
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.
On the equity trading side, we discuss major exchanges such as NYSE Euronext and Nasdaq OMX, but also
new players such as BATS Trading and Direct Edge/ISE
and Dark Pools such as Credit Suisse’s Cross Finder and Goldman Sach’s Sigma X. We
also discuss options and futures exchanges like the CBOE and the CME,
electronic bond trading platforms such as eSpeed and Bondvision, and currency trading systems such as EBS and
Reuters 3000.
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, and rogue traders. 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 M. Werner is the Martin and Andrew Murrer Professor and Department Chair
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 February 23, 2012, and a final term paper assignment
due Tuesday, March 13, 2012. Moreover, a significant fraction of the
course grade will be based on trading simulations.
Requirements
Bus Fin 730 is open to business undergraduate students who have taken Bus Fin
620. Bus Fin 830 is open to MBA (Macc) students who have taken Bus Fin 810 (811). In addition, background in microeconomics is
useful because the notions of supply, demand and economic equilibrium underlie
just about every trading situation. Statistics also comes in handy 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 Simulations 20%
Midterm Exam 40%
Term Paper 20%
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 5 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 5pm on Tuesday, March 13, 2012.
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 20% of your grade. The trading simulations are not simply graded
on profits generated by each trader, but also on learning and on position risk
management. The first trading simulation
-- Rotman Interactive Trader (RIT) -- is based on a software package designed
by the staff in the trading laboratory at the
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. The
textbook is available for free as an ebook through
the Ohio State University library. There
will also be a packet of cases available from Uniprint.
Finally, all students are required to
purchase a license to use a software package Uptick Learning at a cost of
$15.00 per student. 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.