Q1 What is the title of the finance student competition you may consider competing? CME Group University Trading Challenge
Q2 Describe the eligibility requirements, if any (e.g., undergraduate college student). Teams of 3-5 students. Students may be graduate or undergraduate, but the team must consist entirely of graduate or undergraduate students. Maximum of three graduate or undergraduate teams per school. Students must be registered with the school for the duration of the competition, and cannot be a “blend” from different schools.
Q3 What are the competition criteria? Competition Begins on Oct. 4th, 2020 and ends on Oct. 31st, 2020. Competition involves trading CME futures. In the past, this was restricted to: Corn, Soybeans, Live Cattle, Bursa Malaysia Derivatives (BMD) Crude Palm Oil Futures, Crude Oil, Natural Gas, Gold, E-mini S&P 500, 10-Year U.S. Treasury Note, and EUR/USD Futures. Competition last year and this year involves all CME futures. Advisors are strongly recommended but not required, and cannot participated.
Q4 What is the deadline for the submission? Registration ends September 30th, 2020.
Q5 Why are you interested in this competition? Futures are typically a 24-hour exchange compared to the stock market, resulting in constant feedback of market sentiment. Compared to stocks, which have a limited pool of futures participants to react to market news and have market open/close bottlenecks that obscure volatility, commodities futures change every hour of every day. Additionally, the current market movements in food items, gold, crude oil, and treasury notes are fascinating. While uncertainty is everywhere in the market, there is no space with greater speculation (and less Fed intervention) than the supply/demand disruptions for some of the most important raw materials on the planet. Liquidity can prop up banks and bonds but they cannot hide the true supply and demand.
Q6 What would be a possible project you may turn in for the competition? Describe it in at least 100 words. Since the competition is continuous trading, there is no project to “turn in.” However, the competition itself can be used as a project, showing trading decisions and giving reasons for it. Notably, given there is generally a strong correlation in price movements between commodities, a project can be made determining when there are strong arbitrage opportunities. Additionally, comparing precious metals movements against one another could yield positive returns. If there is success in the competition, it can be used as an impressive resume builder.
Q7 List things that you learned in financial modeling course that could be helpful for your project in Q6. Describe it in at least 100 words. Short-term vs long-term MAs could be useful in more consistent supply/demand cycles for goods such as crude oil and gold. Identifying how far they have deviated from the mean can yield successful trades. Comparison charts for gold/oil or gold/silver can show strong sentiment for one over another, which if identified correctly can be subject to a reversal over time. Additionally, back-testing upper and lower limits on prices for certain commodities could show favorable or unfavorable conditions for that specific commodity. For example, the price of silver had crashed to a 10-year low in mid-March, and has since rebounded into a channel resembling the average of the low end of prices over the last 10 years.
Q8 List things that you learned in other finance courses at PSU that could be helpful for your project in Q6. Describe it in at least 100 words. While unlikely to arise, charting daily currency exchange rates could show potential arbitrage opportunities, or more likely bullish/bearish sentiment. Additionally, given the current situation with liquidity in the market, comparing QE news to the 10-year Treasury note in 2008-2011 to today could yield profitable opportunities. Another helpful tool could be analyzing balance sheets of major energy companies. If more of them are in trouble than first thought, this could negatively impact the price of crude oil for months to come.
Q9 Check the finance blog below and see if you see any post that may be helpful for your project in Q6. Discuss how it can be helpful in at least 100 words. https://rviews.rstudio.com/categories/reproducible-finance-with-r/ Perhaps the most helpful piece would be the “outlier days” piece, as investors with a strong negative reaction to news tend to oversell by a percentage scaling upwards with the size of the drop. This is shown by an average “next day” bounceback equal to about 1/3rd of the previous day percentage drop. While this does not necessarily mean there will be a bounceback every time, in the long-run playing off of a negative drop every time should yield a quick positive return.
Q10 List things that you think could be helpful but not taught/offered at PSU finance courses. Discuss how it can be helpful in at least 100 words. The derivatives market is the largest of all the financial markets, used as a tool by hedge-fund managers and financial institutions to offset losses and increase performance over time. It was also a large reason for the disastrous recession started in 2008. Understanding the derivatives market, as well as technical analysis, could prove to be a valuable tool for identifying stock market trends or inefficiencis. While it might be a part of graduate level courses, an in-depth understanding of the derivatives market as a senior level course should be offered.