An empirical heterogeneous trading strategy model in the Shanghai stock market of China

In this paper, we study an order-driven stock market where agents have heterogeneous estimates of the fundamental value of the risky asset. The agents are budget-constrained. Their value-based trading strategy in which buys or sells depend on whether the price of the asset is below or above its risk-adjusted fundamental value. We assume that investors´ optimal demand for the risky asset depends on wealth, as a result of CRRA utility. We adopt PE and turnover to study fundamentalism and characteristics on cross-sectional earnings impact. The empirical results show that: fundamentalist trading strategy and chartist trading strategy for different combinations have different effects. In China, fat tails and a leptokurtic shape of the return distribution is the fundamentalist trading strategy and chartist trading strategy of the common effects.