Nonlinear behavior of the Chinese SSEC index with a unit root: Evidence from threshold unit root tests

Details Nonlinear behavior of the Chinese SSEC index with a unit root: Evidence from threshold unit root tests Nonlinear behavior of the Chinese SSEC index with a unit root: Evidence from threshold unit root tests

2007-07-16

arxiv.org/abs/0707.2284v1

Physica A 387 (2-3), 503-510 (2008)

Economy

Quantitative Finance

Statistical Finance

10 Elsart pages + 5 tables + 1 eps figure

Scientific paper

10.1016/j.physa.2007.09.029

We investigate the behavior of the Shanghai Stock Exchange Composite (SSEC) index for the period from 1990:12 to 2007:06 using an unconstrained two-regime threshold autoregressive (TAR) model with an unit root developed by Caner and Hansen. The method allows us to simultaneously consider non-stationarity and nonlinearity in financial time series. Our finding indicates that the Shanghai stock market exhibits nonlinear behavior with two regimes and has unit roots in both regimes. The important implications of the threshold effect in stock markets are also discussed.

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