An Empirical Re-Examination of the Cross-Section of Expected Returns: UK Evidence

This paper is a study of the Fama and French (1992) analysis in the UK context. Consistent with their findings, our results do not support a positive relationship between beta and average monthly returns. We find that book-to-market equity and market leverage are consistently significant in explaining UK average returns. Contrary to the Fama-French evidence, size has an insignificant effect on average returns. A puzzling negative beta-returns relationship is found in some monthly regressions,and results based on annual data reveal a reversal of betas for the smallest-size portfolios. Some possible explanations are offered for these findings.