Want to start bidding on car stock? Edmunds.com, a well renowned car enthusiast website has started with a beta service entitled CSX – namely car stock exchange.  The service is based on the idea of a prediction market. These markets are speculative, created for the basis of assigning a cash value to an event. In the case of CSX, the CSX$1 value translates into a prediction of 1,000 units of the particular car model being sold. This market is based on future models of cars – and the CSX dollar value represents the units sold within six months of car release date.  In addition to just buying stock, a user also has the option of “short”-ing a stock. This refers to the idea behind predicting that the stock value will go down and borrowing shares; selling them at current prices; returning them in the near future by buying them again at a hopefully lower price and pocketing the difference.

In this exchange, Edmunds.com acts as a trader in between and in the beta version operates with no trading fees. This is unrealistic compared to the real world where there is always a trading charge for a transaction – however small it may be. In addition, newly announced cars have IPO’s or initial public offering - which is defined by initial sale of company stock to the public.

Every new user is offered CSX$1,000,000 to start trading and prized are periodically awarded to the user with the largest portfolio. To date, only a handful of cars models have completed their IPO’s but a new car model is launched every week. For instance, by 1PM on March 7^th, 2008, the value of the 2009 Honda Pilot on this exchange hovered around $78.02. The current Honda pilot is being fully revamped for the 2009 model year. The current generation Pilot has being seeing declines in sales due to rising gas prices and increased competition from the smaller SUV market segment – such as its smaller sibling the Honda CRV. However, analysts predict that the 2009 honda pilot redesign will make the vehicle emerge once again as a market leader in its segment. The stock price for the 2008 smart fortwo hovered around CSX$72.61 at the same time. The smart fortwo is a two door mini car designed by the maker of Swatch watches and Mercedes Benz. The fortwo is only 106 inches in length – 3 inches shorter than the popular mini cooper. However, its 71hp engine and delivers more than 40 miles per gallon. This car has had great success in Europe and Canada but there are fears that launching it in the US – the land of pickup trucks and SUV’s would prove disastrous for a vehicle this size. However, the fortwo has done relatively well in government crash tests and now it is up for the average American to decide whether they are willing to buy such a small car.

This relates to several theories that we discussed in lecture. We spoke about a stock market in detail especially relating to the relationship between traders, buyers and sellers. This virtual stock market is in many ways similar to the concepts used in real stock exchanges like the NYSE, NASDAQ, etc. which are high volume, using real money and where the trader usually charges a fee for a trade.

I encourage all of you to register in the CSX and play the virtual game. It will give us a good idea of the real stock market.

Link: http://csx.edmunds.com/Main.php?do=csxmainlanding