Tuesday, October 16, 2007

Basic Idea of Virtual Stock Markets

The application of Internet-based virtual stock markets (VSMs) is a new approach that can be used to predict short- and medium-term market developments. Its basic idea is to bring a group of participants together via the Internet and let them trade shares of virtual stocks.

These stocks represent a bet on the outcome of future market situations and their value depends on the realization of these market situations. Once the outcome of a specific market situation is known, each share of virtual stock receives a cash dividend (payoff) according to that specific market outcome (e.g., $1 for each unit sold).

In this process, a virtual stock market elicits and aggregates the assessments of its participants concerning future market developments.

With a subject as complex and information driven as the stock market this allows the students to learn in a hands-on way. Classes at universities are also being structured around using the Virtual Stock Market games.

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