Structural Change of Unit Root, Efficiency and Contagion

We measure the stability of Chinese stock index's data generating process (DGP) based on the tests of unit root with structural changes. Simultaneously, we investigate the efficiency of Chinese securities market and the difference between the impact of Asian financial crisis and American sub-prime mortgage crisis to China in our testing model. We find that Chinese stock index's DGP is of stability for which it displays a unit root process with structural changes in all times and never changes to a trend-stationary process. There are no big differences about domestic and international economic situations, compared to the past, when the reform of non-tradable shares is in implementation and America explodes sub-prime mortgage crisis in which the DGP shows lager differences. It is indicated that the mechanism reform improves the efficiency of securities market and there is crisis contagion from America to China.