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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.

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The lirst and second authors are from the University of Manchester, and the third author is liotn the University olBirmingham. They would like to thank Denise Osborn. Janette Ruttt-rlord and Martin Walker lor their valuable comments on previous versions 0 1 the paper. iind David Ashton liir his help in initiating this research. They are also grateful lor coinments receiwtl lrom participants at the Finance and Market Based Accounting Research Conlkrence, University of Manchestcr. Part of this research was funded by an award from the Institute of Chartered Accountants in England and Wales.