Issue link: http://www.e-digitaleditions.com/i/269179
74 March/April 2014 BizEd your turn Many business school deans love the idea of add- ing trading rooms to their schools. They imagine how impressed prospective students and potential donors will be with the flashy trappings, which usually include LED stock tickers and walls of video monitors. Trading rooms are so popular that, according to a recent survey by Rise Display, there are 277 of them actively operat- ing in American and Canadian busi- ness schools, and between 35 and 40 could be added in 2014. Many students find it difficult to apply business-school theories to real world situations. A trading room offers them a number of experiential learning opportunities, whether they're observing how prices are affected by announce- ments from the U.S. Federal Reserve; writing reports based on historical, real- time, or simulated data; or acting as portfolio managers who run their own funds. Trading rooms allow them to be graded, not just by their professors, but also by the marketplace. In a trad- ing room, they'll find out that an actual market isn't the frictionless environment they studied in business theory; it comes with pitfalls attributable to imperfect information and implementation costs. In short, they'll learn that making a decision is one thing, but implementing it is something else. Trading Rooms in use But a trading room isn't like the magi- cal baseball diamond in the movie "Field of Dreams"—just because you build one doesn't mean faculty and Trading Rooms: bridges to Reality students will come to it. Professors frequently have to be convinced that they should take time from their crowded course schedules to run exercises in a trad- ing room, and sometimes they need help visualizing the many ways in which such spaces can enrich their classes. Here are a few ideas: n Use the trading room to con- trol how news announcements are released to students as they enter "buy" and "sell" orders in an excit- ing environment replete with rapidly changing prices. To crank the tension up some more, create information asymmetry by making the news avail- able to only some of the students. n Create an exercise that helps stu- dents learn firsthand that their imple- mentation decisions depend on the structure of the market they're operat- ing within. Use the simulated reality of a trading room to change one variable at a time, while keeping everything else constant, much like a lab scientist conducting an experiment. n Integrate the financial market into a nonfinance course. For example, bring a marketing or accounting class into the trading room and have students start trading in a simulated marketplace. After a while, halt the exercise so that a team of students can make a presentation—maybe the marketing team will describe a new product launch or the accounting team will release an earnings report and price projections. Then resume trad- ing and see what happens after the announcements. Do stock prices go up, or do they tank? What a nifty way to show that the price impact of new information also depends on how it is presented. And what a great way for students to experience how their work will be graded by the marketplace. By Deniz Ozenbas and Robert A. Schwartz A trading room offers opportunities for a broad mix of students and faculty. Deniz ozenbas Robert a. schwartz