Academic journal article Journal of Economics and Economic Education Research

The Case of Simulating the Choices of Money Mangers by Applying Modern Portfolio Theory Using Real Stock Price Data

Academic journal article Journal of Economics and Economic Education Research

The Case of Simulating the Choices of Money Mangers by Applying Modern Portfolio Theory Using Real Stock Price Data

Article excerpt

ABSTRACT

Time constraints, as well as ignorance of other business disciplines, often preclude instructors from properly incorporating illustrations from outside their area of expertise into their courses. This can result in students having difficulty in applying skills learned in one course to other courses. We address this student learning issue by showing how the skills and concepts students are learning in an introductory Excel spreadsheet class can be applied to modern portfolio theory using real data from Yahoo! Finance without mathematical and statistical complexity. By using a finance illustration in an information systems course, students are better able to understand the value of the skills they are acquiring now and how these skills will help them solve real-life problems. Moreover, business students who subsequently take an introductory finance course will be familiar with one of finance's most important theories.

INTRODUCTION

Many business students have difficulty applying knowledge learned in one class to other classes, especially if the class is not in their major discipline. Professors often hear statements like the following from students, "Fm a finance major, why do I need to know something about information systems." For these students there is a no connection of how the concepts and skills learned in one class can help them solve problems in another class. In 2002 the Association of American Colleges and Universities published a report entitled Greater Expectations: A New Vision for Learning as a Nation Goes to College that addresses this student learning issue. The report states the following "Once enrolled in College, students face ... barriers to excellence. The fragmentation of the curriculum into a collection of independently "owned" courses is itself an impediment to student accomplishment, because the different courses students take, even on the same campus, are not expected to engage or build on one another. Few maps exist to help students plan or integrate their learning as they move in and out of separately organized courses, programs, and campuses. In the absence of shared learning goals and clear expectations, a college degree more frequently certifies completion of disconnected fragments than of a coherent plan for student accomplishment." The Association of Advance Collegiate Schools of Business (AACSB International) expresses similar student learning concerns in their 2003 Eligibility Procedures and Standards for Business Accreditation. This AACSB publication promotes cross-functional integration within business programs. We address this student learning issue by showing how students can apply finance's modern portfolio theory using real data in an introductory Excel spreadsheet class.

1 990 Nobel Prize winner in economics, Harry Markowitz ( 1 952), is credited with developing modern portfolio theory. His work shows that the adage "don't put all your eggs in one basket" is sound advice. In financial terms he shows that it is possible for investors to combine financial assets (stocks) in such a way that it increases their return while also decreasing their risk. We show that students taking an introductory Excel spreadsheet course can apply his work using real stock price data from Yahoo! Finance. By using a finance application in an information systems class, students will understand how the skills and concepts they are learning in an introductory Excel spreadsheet course can help them in other classes that are often taken years later. It also introduces students to the risk-return trade-off in finance that investment and introductory finance courses cover in detail. Moreover, a number of finance textbooks use Excel to solve and illustrate problems.111 Finally, there are a growing number of financial modeling courses at universities and a growing number of financial modeling textbooks that use Excel extensively. 1V

The purpose of this paper is to show students how simple Excel functions that they commonly learn in an introductory Excel spreadsheet class can help them understand modern portfolio theory without mathematical and statistical complexity . …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.