Understanding Credit Risk: A Classroom Experiment
This 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.
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Volume (Year): 42 (2011)
Issue (Month): 1 (January)
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References listed on IDEAS
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"Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets,"
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"Asset Valuation in an Experimental Market,"
299, California Institute of Technology, Division of the Humanities and Social Sciences.
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"Asset Bubbles without Dividends - An Experiment,"
0439, University of Heidelberg, Department of Economics.
- 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.
- Sheryl B. Ball & Charles A. Holt, 1998. "Classroom Games: Speculation and Bubbles in an Asset Market," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 207-218, Winter.
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