The simulators is based on the US stock market.
One member of the group needs to register on the following website.
https://www.howthemarketworks.com/register/223458
The idea is to build a portfolio – you can start trading from 10/05/2020 until 15/07/2021.
The main purpose of the assignment is for you to explain your investment choices and put into practise your ideas – marks for the assignment are not based on profit/loss.
Note that you are expected to make a minimum of 10 trades.
The assessment has four components:
1. A max two-page document that sets-out your trading strategy, this could be based on any of the portfolio techniques discussed in this, or any other, class. You need to explain what is the purpose of your portfolio (e.g., is it intended to maximise growth, diversification, risk etc), how you choose stocks and any economic models or theories you may be following.
2. A max two-page literature review that considers: why do equity prices change – what are the main drivers of equity prices and changes in their valuations.
There are two broad approaches to this literature:
one that focusses on the cross-sectional behaviour of stock returns. Look over these papers to get you started on the literature
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3017287
second, a time series approach, look at these
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2801670
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2614397
you can also examine them together!
https://faculty.chicagobooth.edu/john.cochrane/research/papers/discount_rates_jf.pdf
these papers are designed to help you find some literature and the basic ideas in them. You do not have to cover both aspects (cross-section and time-series) of the literature (although you can)
3. You then need to keep a diary that details any trades you make after the initial portfolio, this should be max one-page portfolio change and should state what assets you sold, what assets you bought and why.
4. You then need a max two-page document that analyses the performance of your portfolio and where you felt things went well and poorly and what you would change if you were to repeat this exercise.
Picking Stocks
The website used for the trading simulator contains plenty of resources for choosing stocks and for building a portfolio. Some further resources include:
Some tools that might be useful:
https://finance.yahoo.com/screener/new
https://www.marketwatch.com/tools/stockresearch/screener/
It is argued in some literature that particular types of stocks may outperform others
e.g., small cap vs large cap; value vs growth etc
You may prefer to pick stocks from particular industries – some industries are regarded as defensive / cyclical etc
Cyclical: Basic Materials, Consumer Cyclical, Financial Services, Real Estate
Defensive: Consumer Defensive, Healthcare, Utilities
Sensitive: Communication Services, Energy, Industrials, Technology
You could try to find stocks that are mis-priced – perhaps based on an asset pricing model e.g., CAPM / Factor model etc
You could opt for a diversified portfolio – track the movement of the market
You could base your stocks on past movements e.g., technical analysis
You could act as a day-trader, buying and selling the same stock within one day
Or anything else you wish and are able to explain!