THE UNIVERSITY OF HONG KONG
FACULTY OF BUSINESS AND ECONOMICS
FINA2802
Stock-Trak Portfolio Project/Market Game1
Purpose of the Project/Game
You are required to form teams (each up to 4 members, It is recommended that the group members
have good combined skills in math, computer, and writing and communication abilities.) and
participate in a portfolio simulation game with HKD5,000,000 paper money by managing a portfolio
of stocks, bonds, derivatives, mutual funds, etc. over the semester. The goal will be to beat a passive
HKD5,000,000 benchmark portfolio comprised of 50% U.S. equities (an \index fund"), 40% long
term government bonds, and 10% cash (short term money market instruments). You will apply the
concepts learned in the course to select which securities to buy and which to sell, and to evaluate
the relative performance of the portfolio. The purpose of the project is to facilitate your learning
and provide an opportunity of utilizing the techniques such as short-selling, buy on margin, etc..
I strongly encourage students to do regular reading of the nancial press, such as the Wall Street
Journal (http://interactive.wsj.com), or Financial Times (http://www.usa.ft.com), or Bloomberg
(http://www.bloomberg.com/markets/index.html). Some of these on-line newspapers require registration and involve modest user fees. Read nancial news every day and anticipate forthcoming
nancial data release, announcements, and commentaries.
Your trading platform is Stock-Trak Portfolio Simulation (http://www.stocktrak.com), based
in Atlanta, GA. This project provides a very important learning experience. You are asked to meet
and discuss portfolio strategies at least once a week. You need to monitor your portfolio every day.
Timeline
1. Familiarize yourself with stock-trak. Surf the website and read the trading rules
(http://www.stocktrak.com/tradingrules2007.pdf).
2. Submit team names to the TA by September 14. If you wish, name an impressive and
creative title for your team.
3. Open your account by September 20. There is a registration fee of US$19.95 for the account
to be paid and shared by all team members. Accounts must be opened by this deadline! All
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The description is largely based on the notes by Dr. S. P. Rao and Dr. Yongjun Tang
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team members are expected to contribute. A peer evaluation will be conducted at the end of
the semester.
The address for registration is
www.stocktrak.com/public/members/registrationstudents.aspx?p=HKU-FINA2802Fall10
4. Prepare a Portfolio Prospectus. This statement should be in the form of a one-page brochure
or one-page \speci cation sheet". It should describe the investment style, restrictions on
certain asset classes, name (or names) of investment manager (or managers), benchmark
index for performance assessment, expected turnover activity and anything else a potential
investor might expect. It is due to me on September 30.
5. Trading period is September 20-November 5. Each team can invest in any stocks, bonds,
mutual funds, futures, options around the world, including Hong Kong and Shanghai. Investment teams can buy on margin and sell securities short.2 Keep track of your portfolio's
performance on a weekly basis.
6. Presentation of your trading practice during the week of November 22 and 26 (about 5
minutes in class presentation). Your presentation skills are to be evaluated. Sign up the
presentation slot with the TA in advance.
Trading Constraints
In addition to the trading rule set by Stock-Trak, you face the following constraints:
1. your beginning hypothetical cash position is HKD5,000,000;
2. you can do a maximum of 100 transactions (you may be able to add more by paying extra);
3. you are allowed to day trading and you may change your portfolio as often as you wish, but
every transaction costs money.
4. you should remain fully invested; you can have at most 10% of your portfolio in one security,
so make sure to invest at least in 10 stocks (which have 5-yrs. of monthly data in Yahoo) and
you are going to do some analysis of these ten stocks.
Assessment
The project counts 10% in the nal grade and the components have the following weights.
Portfolio Prospectus
Presentation and Peer Evaluation
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I will introduce nancial instruments in the rst few classes so that you will be able to trade all kinds of securities
all over the world. Despite the freedom of asset allocation, the main part of your portfolio will likely be stocks,
although you need to be tactical with stock selection. Note that StockTrak's coverage of Asian stocks is rather
limited, so you will have to trade more U.S. and European stocks.
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How di erent is a paper portfolio from real trading?3
In a \paper portfolio", you start with one million imaginary dollars, \buy and sell" stocks at
reported prices, and at the end of the month tally your pro ts or losses. The essence of a trading
situation is that your actions a ect the prices and actions of others. This doesn't happen with
paper trading. Also, with a paper portfolio, it's too easy to rationalize bad outcomes. This may
leave you with misconceptions about your own trading prowess and risk tolerance which may well
prove dangerous when you move to a real market. You might successfully move from paper trading
to real-world trading pro ts. You might also learn to perform rock music at Shea Stadium by
practice playing air guitar.
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This caveat is borrowed from Prof. Joel Hasbrouck's class note.
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