Harbus

Issue date: 2/17/09 Section: Features

After the Navy retired the F-14s, Iceman decided to switch careers

Dynamic Markets is a unique course at HBS. Instead of just talking, you are required to put your views into practice. Apply the standard theory, try to think ahead of the class, or toss out the theory and go on gut. Whatever strategy you choose is tested in a real-time, competitive trading environment. You also get a lesson in something that MBAs are typically perceived to be weak in: Execution.

Dynamic Markets differs from the typical HBS case-based class in 3 important ways:

First-hand application of theory by trading in a disguised historical market scenario rather than discussion of a historical event
Real-time, constant feedback on your performance in the form of results from your trading strategy and post-mortem discussions
A formalized system whereby your section-mates express their confidence (or lack thereof) in your ability to apply old lessons and adapt to new complications

First, a quick rundown on how it's structured. Before each class, students are given a description of the instruments that will be traded, a basic primer on how to value them and additional reading on ways to think about the market. We then decide our trading strategies and build models to implement them. Class starts with everyone logging in and trading in a market where the decisions of each student (and some pre-programmed computer traders) impact market prices and liquidity. At the end of the simulation we review the results and discuss what happened, who did what, what worked, what didn't, and why. After a few trading sessions, students become "fund managers" and are given "capital" to manage for the rest of the semester. Another interesting feature of the course is that each student has a separate "fund-of-funds" capital pool to invest in their classmates' funds. Each "fund manager" tries to attract their classmates to invest in them by competing on fees, performance, representations of expertise, etc. Students are graded on class participation, their own fund performance, and their "fund-of-funds" performance.

One great advantage of this format is that the lessons really stick. For example, I could get the general gist of liquidity risk and the consequences of leverage from a classroom discussion. But I began to understand the issue on a whole different level after trading in a market that started to experience those problems and saw my fund blow up along with ¾ of my classmates due to a liquidity crunch. This happened to me, not Erik Peterson. We don't get to look at a protagonist and with the benefit of hindsight say, "Oh, I would have done this or that better, and foreseen those consequences". This time, you are the protagonist. Was your strategy faulty? Were you just unlucky? You can learn a lot with an honest assessment of the situation and how you responded.

Continued...

Page 1 of 2 next >

Article Tools

FRONT PAGE