Abstract
The study of mean returns of American stocks showed a poor β coefficient of the Sharpe (1964) and Lintner (1965) capital asset pricing model or the consumption coefficient of Breeden (1979); Reinganum (1981) and Breeden et al. (1989) international consumption-oriented capital asset pricing model. In the same line of thinking, capital asset pricing theory is efficient in explaining stocks mean returns. The empirically determined variables include size (ME: stock price multiplied by stocks number), leverage effect, equity divided by price (E⁄P) and the book-to-market ratio (ratio between stock book value and its market value). Banz (1981); Bhandari (1988); Basu (1983) and Rosenberg et al. (1985) have empirically determining these variables. Using the same method of Fama and French (1992a) we studied the joint roles of market β, size, E⁄P, leverage effect and book-to-market ratio in mean returns. They found that using alone or combined with other variables, β (the regression slope of stock return on market return) poorly explains mean returns. Combining size and market-to-book ratio, the two variables seem to absorb the apparent roles of leverage effect and the E⁄P ratio in explaining mean returns. The main result is that the two empirically determined variables (size and book-to-market) explain well mean returns on the ADI, DJI, TDI and DJU during the 2000-2010 period.