By Karen Guzman
For decades, Roger Ibbotson has been known as a “professor in the practice of finance” at Yale SOM—an appropriate title for someone who believes that students learn best by doing. That’s why, early in his teaching career, he invented a hands-on game that has introduced generations of business students to the real rigors of the stock market.
“Students engage best when they’re able to interact with the material and with each other,” says Ibbotson, a renowned finance scholar who is now an emeritus professor. “In the game, the market comes to life. It’s a sink-or-swim situation, and students come away with a whole new understanding.”
In the Stock Market Game, students become portfolio managers in a real-life market simulation. Ibbotson created the game—first conducted with buying and selling on a mock trading floor and now played online—while he was teaching at the University of Chicago. He brought it with him in 1984 when he joined the faculty of Yale SOM, and where it has become an MBA rite of passage.
In 2020 the game went public. It’s now shared with universities and in corporate settings, straddling both the academic and professional worlds—just as Ibbotson’s long and pioneering career has.
Ibbotson came to Yale SOM from the University of Chicago, where he taught for more than 10 years and served as executive director of the Center for Research in Security Prices. He had studied efficient markets and pricing during his PhD program at Chicago, and his research produced groundbreaking work on historical long-term stock market returns.
“Roger Ibbotson is one of the giants of his generation in financial economics,” says William Goetzmann, Yale SOM’s Edwin J. Beinecke Professor of Finance and Management Studies and the director of the International Center for Finance, as well as a frequent co-author of Ibbotson’s.
“Roger’s most important contribution, both to theory and to the practice of finance, is the measurement of the equity risk premium, the empirical evidence that the higher risk of stocks is associated over the long term with higher realized return,” Goetzmann says. “His research has had a huge impact on investment practice.”
For example, Goetzmann points out, Ibbotson’s work helped spark the trend toward increased investment in equity index funds. And the capital market data produced by the company he founded “became the building blocks to the widespread use of asset allocation models,” Goetzmann says. “Roger is a passionate and innovative scholar who has written key papers on hedge funds, mutual funds, and IPOs, to name just a few topics.”
Ibbotson arrived at Yale SOM during a period of rapid evolution. Just eight years old in 1984, the school was still forging its identity and mission as a graduate business school. Ibbotson came on board to help shape the finance department. He brought a belief in teaching the hard quantitative skills and reasoning behind finance.
“The faculty had some very good theorists, but they needed someone with an empirical background, so I fit right in,” he explains. “When students go for an MBA, they want each course to be usable in some way. Understanding how the markets work, and the thinking that underpins them, is essential.”
As a new faculty member, Ibbotson appreciated the passion for teaching he saw around him. “I’m a good teacher, but when I came here, I saw pretty quickly that I was no longer the best teacher,” he recalls. “Yale has always cared about teaching, and they put much more emphasis on it. Students appreciate good teaching.”
Being a professor in the practice at Yale SOM allowed Ibbotson to continue running Ibbotson Associates, a financial consultancy he started while he was in Chicago.
“It was a completely symbiotic relationship, because my research had applications in my business activities, and the things I did in business had applications in the classroom,” he says. “All my work basically has been, for the most part, very applied, which matches what students really want. They want to see how you can actually use things.”
Over the years, Ibbotson has primarily taught the core curriculum courses Corporate Finance and Investor, in which the Stock Market Game is a longstanding centerpiece. “I’ve always enjoyed the introductory courses, because there are so many ways you can surprise students and change the way they think,” he says. “I’ve had students who aren’t fans of finance, for example, often talk about how they went from a base knowledge of nothing to suddenly understanding the world around them in a different way.”
With Ibbotson in New Haven, Ibbotson Associates continued expanding, and in 2006 he sold it to financial data giant Morningstar, but not before one of his students, Katsunari Yamaguchi ’86, opened a Tokyo-based branch of the company. “I developed a great relationship with him,” Ibbotson recalls. “He was just a star student. There was one episode in particular where we’re covering a case, and everybody was sort of confused, and Nari said, ‘Well, let me take the chalk.’ And he comes up to the board and explains everything to everybody.”
Ibbotson continued mentoring Yamaguchi after Yamaguchi graduated from Yale SOM and while he held several finance positions in the U.S. before returning to Japan. “His teaching and advice changed my career from a commercial banker to an investment manager,” says Yamaguchi, who has served as president and chairman of Ibbotson Associates Japan.
Motivated by a 2001 Ibbotson research paper on stock market returns, Yamaguchi published similar articles, as well as a book, The Risk Premium on the Japanese Economy. He earned a PhD and in 2022 became a professor at Waseda University Business School. “Just like Roger during my Yale SOM days 35 years ago,” Yamaguchi says, “I am also now a ‘professor in the practice.’”
After the sale of Ibbotson Associates, Ibbotson later launched a second company, Zebra Capital Management, LLC, an equity investment, index, and hedge fund manager, of which he is currently chairman. Ibbotson’s research and professional roles have continued to shape his curriculum, he says, as has his focus on quantitative rigor. “I bring in the hard science always,” he says. “I was never afraid to put equations on the board, and I think people appreciate it because they aren’t just getting a soft version of something. They’re learning the process.”
At the same time, Ibbotson strives to keep class as interactive as possible, and that’s where the Stock Market Game has been so useful. “Ultimately what it shows students is that they’re trading with each other,” Ibbotson says. “So, the market is the sum of everybody, and collectively some people beat the market, and some people do worse. That zero-sum game aspect is not very well understood, but after students go through the game, they mostly can see it, because the fact is that we are the market, and the market prices come from us.”
When Ibbotson transitioned to emeritus status in 2013, he began teaching solely in the MBA for Executives program.
“I've always loved the experience with the executive students,” he says. “They’re so enthusiastic about everything, and they’re older. They’ve been away from intellectual inquiry for a while, and they’re excited to be back. A lot of them tell me that my class is the most challenging class they take.”
EMBA students and alums say they appreciate Ibbotson’s breadth of experience, as well as his scholarship.
“Roger Ibbotson is on a short list of professors who can be considered an industry leader and an esteemed academic scholar,” says Sam Hufton ’22, an alum of the EMBA program’s asset management focus area. “He teaches a technical subject in an interactive style that keeps the class engaged, and he could fill a Yale SOM auditorium 10 times over with his Stock Trading Game.”
Trisha Farmer ’23, an EMBA student in the program’s healthcare focus area, says the game taught her a great deal about the market. “Professor Ibbotson is an incredibly teacher, because he brought real-life experience, as well as textbook expertise, to every class,” she says. “I feel fortunate to have learned about investments and finance from one of the greatest leaders in the industry.”
Ibbotson says his students changed as Yale SOM has evolved—growing more global and more diverse in every respect—but some things haven’t changed: “They’ve always been intelligent, smart, and enthused,” he says. “They’ve always been demanding because they want things that they can use. Nowadays, I teach mostly just for fun. It’s very rewarding. I get my students excited about learning, and they excite me.”
Interviewed on April 5, 2022