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Marketing Students Test Analysis Skills, Trade Futures in Electronic Movie Market

Using the Iowa Electronic Markets (IEM), marketing students at the University of Iowa and Winona State University will be speculating on the box-office success of two highly anticipated pre-holiday movies, "Monsters, Inc." and "Harry Potter and the Sorcerer's Stone."

Tom Gruca, associate professor of marketing at UI, will use the online technology of the IEM to help his MBA marketing management class gain practical experience in marketing analysis and financial trading. Gruca's students will trade in the "Harry Potter" market, while students in an undergraduate marketing class at Winona State University in Minnesota will trade in the "Monsters, Inc." market.

The IEM is a real money, web-based market, trading in futures contracts where eventual payoff depends on the movies' four-week box office receipts as measured by AC Nielsen EDI.

To make their forecasts about the movies' success, students conduct research using many sources including information from movie industry web sites, looking at past performance of similar movies, critic's reviews and expected performance of competing movies released in the same time period in previous years.

"They gather information and integrate it into single forecast, and then implement an investment strategy based on that forecast," Gruca explained. "Forecasting a movie's success is a very challenging application of their marketing analysis skills."

Trading began Oct. 19 in the "Monsters, Inc." market and is based on box office receipts in the first four weeks of release, from Nov. 2 to Nov. 29. Futures contracts are for box office receipts of $0-$120 million, $120-$140 million, $140-$160 million, $160-$180 million, and $180 million or more. If the trader predicts correctly the box office totals and purchases a contract that reflects their opinion as of Nov. 29, the payoff is $1 per contract; other contracts expire worthless in this winner- take-all market. The Winona State students use $5 accounts with funds supplied to the IEM by a National Science Foundation grant intended to promote economic literacy at colleges serving minority and rural populations.

So far, IEM traders think "Monsters, Inc." will make around $150 million.

Trading in the UI class will begin Nov. 2 on the "Harry Potter and the Sorcerer's Stone" market and will be based on box office receipts from Nov. 16 to Dec. 13. The IEM will offer five future contracts for five box office receipts ranging from $0 to $220 million or more. The UI MBA students will trade using $5 accounts supplied by the Tippie School of Management.

"Students get a lot of assignments doing analysis or defending their recommendations from a case study. But with the IEM, they are making decisions and taking action in a market with a real dollar payoff. It completes the cycle of business decision-making," he said. Students like the IEM because it prepares them for their careers in marketing and finance, Gruca said.

The IEM movie markets are for classroom use and are open only to traders with academic affiliation.

"We have several second-year MBAs who used the IEM in last year's marketing management class, and they are eager to trade," Gruca added.

Since 1995 Gruca has conducted markets on 14 movies with students from the University of Iowa MBA program and other schools throughout the country. His movie choices are based on their probable appeal to college students who trade in the IEM.

Started in 1988, the IEM is a teaching and research laboratory at the UI Tippie College of Business. Six faculty at the Tippie College have conducted several other political and business markets, including markets for the 2000 presidential elections, the New York Senate race, and Republican or Democratic control of the two houses of Congress. During the 2000 presidential elections, the IEM had 7,600 traders and more than $240,000 in equity.

The IEM also has opened a market on the New York mayoral race and a new futures market on the federal funds rate target, which are both open to all traders; a similar market on the Fed Funds rate was only open to academic traders previously.

For more information, see the Iowa Electronic Market website at tippie.uiowa.edu/iem> or contact Gruca at (319) 335-0946.


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