Stock market games, such as Virtual Stock Exchange, SmartStocks, Wall Street Survivor, or How the market works, seem like a good way of engaging students in an investments course. Students buy and sell stocks and are ranked by their performance.
However, I try to discourage my students from participating in these trading simulations as much as possible as they legitimize active trading, even though there is an unassailable theoretical argument that active investors lose out to passive investors on average, and very strong data showing that even professional active fund managers with strong incentives and vast resources get consistently beaten by the index, at least in developed countries with highly liquid stock markets. The notion that students can benefit from security selection is thus far fetched. Stock market games are a gateway drug.
I’d love to hear your opinion. Please leave a comment.
Teaching Finance 
I use a trading game in my college investments course and I get the opposite outcome. I hold the S&P 500 and I force them to complete at least 3 trades per week. The vast majority of them do not beat my strategy and the ones who trade the most usually do the worst. The game is my strongest resource in teaching about efficient markets.
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Roger, do you give students any performance-related incentives to trade? I’m concerned that the few students who beat the index due to dumb luck attribute their success to their superior stock picking skills, or do they not do that based on your experience?
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Yes there is an incentive to play the game as they have to write a summary paper for 10% of the semester grade once the game is done. They are not graded on portfolio performance but can get bonus points for finishing in the top 3 or 5 depending on class size. This is for an Introduction to Investments class and is often the class finance students take after the first corporate finance class. The trading game starts very early in the semester before we discuss fundamental analysis, efficient markets, or behavioral finance in the class. They were exposed to some of these concepts in their first finance class. The point being that someone who signs up for Etrade wouldn’t necessary be aware of that knowledge earlier. I do not give any stock “tips”. I have had some outstanding papers written by students showing how their thought process concerning the stock market changed quite significantly during the semester.
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