A heterogeneous behavioral decision model according to binary classification

The paper separates the investors in stock market into informed traders and uninformed traders according to the characteristic of the investor heterogeneity, which denies the classical capital market theories' assumption that investors are homogenous. Firstly, the assumption is made that two kinds of investors have respective forms of behavioral decision models which the irrational expectation and the irrational risk aversion are leaded into. Secondly, the difference of reaction strength and behavioral pattern is tested between the two kinds of investors by Event Study Methodology. Finally, verify the rationality of binary classification in behavioral decision model. It has been found through empirical research on China's capital market that a body of evidence with systematic patterns can not be easily explained with rational asset pricing models.