This paper examines the time-series relations among expected return, risk,
and book-to-market (B/M) at the portfolio level. I find that B/M predicts e
conomically and statistically significant time-variation in expected stock
returns. Further, B/M is strongly associated with changes in risk, as measu
red by the Fama and French (1993) (Journal of Financial Economics, 33, 3-56
) three-factor model. After controlling for risk, B/M provides no increment
al information about expected returns. The evidence suggests that the three
-factor model explains time-varying expected returns better than a characte
ristics-based model. (C) 1999 Elsevier Science S.A. All rights reserved.