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First and second order instability of the Shanghai and Shenzhen share price indices

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  • Yong Hong Yan
  • Bruce Felmingham

Abstract

First and second order instability tests are applied to China's two major share market price indices (SPIs), Shanghai share market price index (SES) and Shenzhen share market price index (SZS) using daily data from 2 January 1992 to 16 July 2004. First order instability is synonymous with non stationarity and second order instability with structural breaks. Applying procedures developed by Perron (1997) and Zivot and Andrews (1992), it is found that both share price indices are unstable in the first and second order. The Shanghai series breaks in December 1999 and Shenzhen in May 1999. Existence of the share A (domestic listing) and share B (foreign listing) seem to buffer both markets against the worst effects of the Asian Crisis and September 11 attack. These shocks were apparently absorbed by the foreign listings of shares.

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  • Yong Hong Yan & Bruce Felmingham, 2006. "First and second order instability of the Shanghai and Shenzhen share price indices," Applied Economics Letters, Taylor & Francis Journals, vol. 13(9), pages 605-608.
    • Handle: RePEc:taf:apeclt:v:13:y:2006:i:9:p:605-608
    DOI: 10.1080/13504850500424918
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    1. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
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    3. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    4. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
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