In particular, their stock markets have shown increasingly greater integration since the early 2000s. This may be associated with the establishment of region-wide production and trade networks in Asia. Japan has been exerting a strong influence on other Asian stock markets. In recent years, the influence of China on stock markets in this region has increased.
And this is consistent with the growing importance of China in the post-crisis period.7 The greater synchronization in Asia suggests that stock markets are more prone to common shocks, rather than country-specific shocks, and therefore investors may benefit less from diversifying their portfolios across the Asian region.