Understanding Credit Risk: A Classroom Experiment
AbstractThis classroom experiment introduces students to the notion of credit risk and expected return, by allowing them to trade on comparable corporate bond issues from two types of markets: investment-grade and high-yield markets. Investment-grade issues have a lower probability of default than high-yield issues and thus provide a lower yield. Participants can earn money in three ways: from coupon payments, from the face value of the bond, and by capital gains. While participating in an experiment, students learn about the notion of risk and return, how credit risk affects bond prices, the movement of bond prices through time, and other general characteristics of the bond markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal The Journal of Economic Education.
Volume (Year): 42 (2011)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.tandfonline.com/VECE20
Other versions of this item:
- A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Forsythe, Robert & Palfrey, Thomas R. & Plott, Charles R., .
"Asset Valuation in an Experimental Market,"
299, California Institute of Technology, Division of the Humanities and Social Sciences.
- Oechssler, Jörg & Schmidt, Carsten & Schnedler, Wendelin, 2007.
"Asset Bubbles without Dividends - An Experiment,"
Sonderforschungsbereich 504 Publications
07-01, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
- Plott, Charles R. & Sunder, Shyam., .
"Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets,"
463, California Institute of Technology, Division of the Humanities and Social Sciences.
- Plott, Charles R & Sunder, Shyam, 1988. "Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets," Econometrica, Econometric Society, vol. 56(5), pages 1085-1118, September.
- Martin Dufwenberg & Tobias Lindqvist & Evan Moore, 2005. "Bubbles and Experience: An Experiment," American Economic Review, American Economic Association, vol. 95(5), pages 1731-1737, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.