The Application Of Heterogeneous Agent Model In China's Stock Market

The traditional asset pricing model with the assumption of a rational representative investor shows limitations in explaining many typical characteristics in financial markets,including excessive volatility in prices and returns,momentum in short-term and trend reversals in medium-and long-term.Heterogeneous agent model is one of the important developement among the revisions of the traditional asset pricing model.Since the 1990s,China's stock market has experienced rapid growth after its restart.Compared with developed economies abroad,China's tock market has higer volatility,and its particularity also makes it have more endogenous heterogeneneity,which is difficult to explain by traditional pricing theory.There are obvious excessive volatility and irrational speculation in China's stock market.Studying and explaining this phenomenon can help us understand the operation of the stock market more accurately and provide some reference for possible policy makers.Based on a heterogeneous agent model,this paper considers that the types of investors in China's stock market mainly include fundamentalists and chartists.The following three questions are discussed through empirical research:(1)from the macro level,whether the typical heterogeneous agent model can explain the fluctuation of China's A-share stock index;(2)from the micro level,can the typical heterogeneous agent model explain the stock price fluctuations at the A-share listed company level;and(3)how the company's fundamental factors affect the investors'belief about the company's valuation.The empirical analysis of China's A-share stock index from January 1995 to June 2018 shows the existence of two type heterogeneous investors in the stock market.The time series of the proportion of heterogeneous investors and the average market sentiment also capture the several market bubbles and plunges over the past three decades.At the same time,the estimation results of 450 listed companies of Shenzhen Stock Exchange A shares indicate that the heterogeneous agent model can also explain the stock price fluctuation of A-share listed companies.After that,we use the proportion of chartists among the company's stock investors as the explanatory variable to explore how the company's fundamental factors affect investors'preference for the company's valuation.Panel data regression results based on the beta regression model show that chartists tend to invest in growth stocks with lower net profit,and rising Tobin Q will increase the proportion of trend followers.The fundamentalists prefer stocks with high total asset turnover and higher net assets per share,indicating that the company's operating capacity,such as sales ability and high net asset value,contribute to the price return to the company's real value.In perspective of the company's shareholding structure,the concentration of the company's equity is positively related to the proportion of chartists.Compared with state-owned companies,investors to foreign-owned companies have fewer followers of chartists.