This dissertation works on dynamic asset pricing with heterogeneous agents. The heterogeneous agent model assumes that public information is available to all investors and agents. However, the agents or the investors form different beliefs and different trading strategies based on the same information. Investors keep reallocating their money between different strategies depending on their beliefs. This dissertation assumes there are two strategies in the market, namely fundamentalist and chartist strategies. A strategy with a good performance is expected to attract more investors than other strategies. Fundamentalists believe that any mispriced asset adjusts its price back to fair value. Chartists believe that the trend of deviations from fundamental values continues in the next period. This dissertation estimates the model by collecting monthly Australian stock price from 1882 to 2008. Our estimated results support that there is heterogeneity in the stock market and the model with two types of investors outperforms a homogeneous expectation model. The fractions of investors using the chartists and fundamentalists forecasting rules show substantial time variation and switching between predictors. From the 1980s onwards, the investors in the stock market switch between two strategies more frequently than in the past.