  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.
