Daniel is incorrect. In emerging markets, there is evidence that extreme negative movements in one market coincide with the same in others, which most investors think of as contagion. However, the mere presence of increased correlations between markets during crisis periods does not suffice as evidence of contagion because correlations increase as volatility increases due simply to the statistical properties of the correlation measure.

Shrum is incorrect. Although liberalization may positively impact return variability if greater information flow results in increases in speculative capital flows, the empirical evidence demonstrates that liberalization does not affect the volatility of returns. Over the long run after liberalization, return variability should decline as the economy matures