The Cross Section of Common Stock Returns: A Review of the Evidence and Some New Findings

In this paper we review the evidence on the cross-sectional behaviour of common stock returns in the US and other equity markets around the world. Since the early 1980's, a growing number of empirical studies have documented the presence of persistent cross-sectional patterns in stock returns that do not support one of the fundamental tenets of modern finance: expected stock returns are determined by their level of beta risk through a positive and linear relationship known as the capital asset pricing model, or CAPM.