"A lot of my students are making trades, and some of them are getting a higher return than the average," says Roley.
One of his students found a "trading rule," a way to make a favorable trade, often taking advantage of price differentials between markets. In this case, the student discovered a trading rule in the options market. In a 2 for 1 stock split, the shares in the options market would be mispriced right after the split. Eventually the options market went back to the right price level.
Roley says his student explored the rule in an independent study project--and at the same time made a very favorable return in the options market. But a few months later, the same trading rule turned up in a financial journal as part of a professor's paper. Once widely discovered, the advantage of playing a trading rule disappears as traders are now aware of the discrepancy.
Today, with Wall Street in its seventh year as a bull market, most students who play the market are going to be winners. But, both professors warn, a downturn is inevitable. It is not something that their students seem to understand.
"Many of them were too young to be aware of what happened in 1987," says Ferson. "Until you've experienced a market downturn, it can be hard to believe it."
"My students really don't understand that the market can go down. I have to show them the numbers from 1968-79, when it was as bad as it is good now. People were losing money in real terms," adds Roley.
Business student Yin agrees. Even though he has worked as a broker for Prudential and Smith Barney, when it comes to bull markets, he says, "Everyone is naive, including me. It's tough. Most of us haven't seen a bearish market."
While the market may go up and down, demand for the investment courses will continue to rise. Open only to business majors, usually only seniors get into the undergraduate course because they have top registration priority.
It is worth the wait. "It's better than the typical course," says Yin. "It's really a course that most students need. It was not one of those courses where you walk out and ask yourself, `When am I ever going to use any of this?' "
"This was the class that did it," says former student Craine. "I realized that I love this stuff, that this is what I wanted to do when I grew up."* Tom Griffin is editor of Columns.
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