Beta, size, book-to-market equity and returns: A study based on UK data

This paper examines the role of beta, size and book-to-market equity as competing risk measurements

in explaining the cross-sectional returns of UK securities for the period July 1980 through June 2000.

The methodology of [Fama, E., French, K., 1992. The cross-section of expected stock returns. Journal of

Finance 47, 427–467] and [Pettengill, G., Sundaram, S., Mathur, I., 1995. The conditional relation between

beta and returns. Journal of Financial and Quantitative Analysis 30, 101–116] is adopted. Results show

that, when adopting the methodology of [Pettengill, G., Sundaram, S., Mathur, I., 1995. The conditional

relation between beta and returns. Journal of Financial and Quantitative Analysis 30, 101–116], where data

is segmented between up and down markets, a significant relationship is found between beta and returns

even in the presence of size and book-to-market equity. Size is not found to be a significant risk variable,

whereas book-to-market equity is found to be priced by the market and is thus a significant determinant of

security returns. This is the case irrespective of the methodology adopted.