Abstract
This paper studies the risk-return trade-off in some of the main emerging stock markets in the world. Although previous studies on emerging markets were not able to show a positive and significant trade-off, favorable evidence can be obtained if a nonlinear framework between return and risk is considered. Using fifteen years of weekly data observations for twenty-five emerging markets Morgan Stanley Capital International indexes in a regime-switching GARCH framework, the author obtains favorable evidence for most of the emerging markets during low volatility periods, but not for periods of financial turmoil or using the traditional linear GARCH-M approach.