Dr. Sherry Jarrell’s Principles of Finance course is not your typical class on corporate finance. While standard topics regarding the time value of money, financial markets, and cost of capital are covered throughout the semester, Jarrell has added a hands-on project to help teach stock valuation to her students and, according to Jarrell, “bring some fairly abstract concepts to life.”
The project, which requires students to choose a stock they believe to be either overvalued or undervalued, enables students to track their stock picks throughout the semester, compare their forecast with actual stock returns, and make adjustments to their predictions as real-world events unfold.
Spanning the entire semester, Jarrell believes that her students will “…be able to actually see with their own eyes how the stock prices of publicly traded companies react to new information in real time, learn how to use real-world data to perform an empirical analysis on stock price formation, and draw their own informed conclusions about the degree and nature of capital market efficiency.”
Teams of three to six people form to get the project underway at the start of the semester. Within the first two weeks, teams are required to put together their own preliminary report in which they then present to the class. With the use of the capital asset pricing model and equity betas, teams are able to report the rate of return the market is currently expecting from the stock over the semester term.
And students are not the only ones benefiting.
“The benefit to me as a teacher is that this project provides me with a structured vehicle for having in-depth discussions with students about both the theoretical and practical implications of how information is gathered and reflected in stock prices,” Jarrell explains. “Those discussions help me to see how well the student is actually learning the concepts from class, and helps the student learn how to clearly articulate their understanding of that material both in their conversations and in the written report.”
The written report is the final deliverable of the project yet the lessons learned last with students beyond the conclusion of the semester.
Jarrell has come to understand that with the project, she is able to reach students on a completely different level as she explains that, “Only through that one-on-one, directed interaction can I really ensure that real learning, as opposed to memorization, is taking place.”