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Abstract：Many asset pricing models are built on the assumption： A rational representative agent，which can’t explain the excess volatility in stock price.The smooth-transition autoregressive （STAR） model （Terasvirta，1994） is used in this analysis，since the switching between two agents over time can be well reflected.
Key words：heterogeneity； Chartist；SSE ； STAR model
1.Introduction
As a developing financial market，China security market is considerably specific.Different from other countries’ financial market，China financial market is strongly macro-controlled by the government.In 2004 the price-earning ratio of the SSE was close to 21，increase to more than 47 at the end of 2007 and quickly decrease again to less than 14 by the end of 2008.Why do the PE ratio fluctuate so much？
To improve the model，we do a similar analysis which is figured out by Brock and Hommes （1997），Brock and Hommes （1998）.In this paper，we use the dataset on the SSE composite index to estimate the heterogeneous agent model.In the model，the macroeconomics and financial indicators govern agents switching between Fundamental and Chartist.
2.Motivation
Many of the asset pricing models discussed by Cochrane （2011），are based on the concept of a rational representative agent，which leaves little space for heterogeneity opinions to have an impact on prices.
3.Model
Firstly，we analyze the traditional asset pricing model with present value，and set up the parameters.The riskless asset pays a constant return r，in other words，the constant discount factor is given by （1 + r）-1.The price can be expressed as adiscouned expected of dividend and price in next period，furthermore，after iterating calculation over period，we can get：
5.Result
5.1.NLS
Next，we use nonlinear least squares to estimate the STAR model.To find the appropriate starting values，we solve the model on a grid of γ，c and β1，β2，β3.
The above show the STAR models with multivariate transition function.This model identifies the two distinct regimes.The autoregressive parameter representing the fundamentalist type is 0.693.
6.Conclusion
In this paper，we divide the agents to two boundedly rational parts who are heterogeneity in beliefs： Fundamentalists and Chartists.To estimate the effects of macroeconomics and financial indicators on the strategies of agents，we derive the asset pricing model with heterogeneity agents in general case.As a innovation，we analyze the SSE index in China，a developing financial market，and use the statistic model to estimate.
References：
[1] Boswijk，H.P.，Hommes，S.，2007.Behavioral heterogeneity in stock prices.Journal of.
[2] Brock，W.A.，Hommes，C.H.，1997.A Rational Route to Randomness.Econometrica 65，1059.
About the Author：
Junhao SHEN （DOB 06 April，1994），University of Washington。
Key words：heterogeneity； Chartist；SSE ； STAR model
1.Introduction
As a developing financial market，China security market is considerably specific.Different from other countries’ financial market，China financial market is strongly macro-controlled by the government.In 2004 the price-earning ratio of the SSE was close to 21，increase to more than 47 at the end of 2007 and quickly decrease again to less than 14 by the end of 2008.Why do the PE ratio fluctuate so much？
To improve the model，we do a similar analysis which is figured out by Brock and Hommes （1997），Brock and Hommes （1998）.In this paper，we use the dataset on the SSE composite index to estimate the heterogeneous agent model.In the model，the macroeconomics and financial indicators govern agents switching between Fundamental and Chartist.
2.Motivation
Many of the asset pricing models discussed by Cochrane （2011），are based on the concept of a rational representative agent，which leaves little space for heterogeneity opinions to have an impact on prices.
3.Model
Firstly，we analyze the traditional asset pricing model with present value，and set up the parameters.The riskless asset pays a constant return r，in other words，the constant discount factor is given by （1 + r）-1.The price can be expressed as adiscouned expected of dividend and price in next period，furthermore，after iterating calculation over period，we can get：
5.Result
5.1.NLS
Next，we use nonlinear least squares to estimate the STAR model.To find the appropriate starting values，we solve the model on a grid of γ，c and β1，β2，β3.
The above show the STAR models with multivariate transition function.This model identifies the two distinct regimes.The autoregressive parameter representing the fundamentalist type is 0.693.
6.Conclusion
In this paper，we divide the agents to two boundedly rational parts who are heterogeneity in beliefs： Fundamentalists and Chartists.To estimate the effects of macroeconomics and financial indicators on the strategies of agents，we derive the asset pricing model with heterogeneity agents in general case.As a innovation，we analyze the SSE index in China，a developing financial market，and use the statistic model to estimate.
References：
[1] Boswijk，H.P.，Hommes，S.，2007.Behavioral heterogeneity in stock prices.Journal of.
[2] Brock，W.A.，Hommes，C.H.，1997.A Rational Route to Randomness.Econometrica 65，1059.
About the Author：
Junhao SHEN （DOB 06 April，1994），University of Washington。