106 Journal of Financial and Quantitative Analysis significant empirical content"(p. 439). In a sample of daily returns, Reinganum finds a tendency for portfolio returns to decrease as beta increases. In contrast, for a sample of monthly returns, Reinganum finds a positive relationship between returns and beta, but argues that this apparent corroboration is spurious on two counts. First, the difference in returns across portfolios is not significant. Sec ond, the positive relationship between beta risk and return is not consistent across subl Tinic and West (1984)also reject the validity of the slB model based on ntertemporal inconsistencies. Using monthly data, they find a positive and signif- icant slope when regressing portfolio returns on portfolio betas when return data for the entire year are included. Tinic and West are, however, unable to reject the null hypothesis of no difference in returns across portfolios if return data from the month of January are excluded. Further, for several months of the year, nega- across months of the year led them to conclude that their resul the slb model tive slope coefficients are observed. This inconsistent support for doubt on the validity of the two-parameter model.. "and"... to the extent that the risk-return tradeoff shows up only in January, much of what now constitutes the received version of modern finance is brought into question"(Tinic and West (1984),p.573) Several other studies stress that the ability of beta to explain changes in return is weak relative to other variables. Lakonishok and Shapiro(1984),(1986)find an insignificant relationship between beta and returns. Further, Lakonishok and Shapiro find a significant relationship between returns and market capitalization values From these tests, Lakonishok and Shapiro conclude that an dividual securitys return did not appear to be specifically related to its degree of systematic risk”(1984),p.36 Fama and French(1992) study monthly returns and find an insignificant re- lationship between beta and average returns. In contrast, market capitalization and the ratio of book value to market value have significant explanatory power for portfolio returns. Fama and French state: We are forced to conclude that the SlB odel does not describe the last 50 years of average stock returns"(p 464) In summary, Reinganum finds therelationship between beta and cross-section- al returns to vary across subperiods. Tinic and West find the relationship between beta and the returns to vary with months in a year. Lakonishok and Shapiro and Fama and french find the relationship between beta and returns to be weaker than the relationship between returns and other variables. Collectively, these results have been taken as evidence that the slb model provides an inadequate expla nation for the risk-return behavior observed in capital markets. In contrast, the methodology described below accounts for the conditional relationship between beta and realized returns, and finds a systematic relationship between these vari- Although they argue in support of the SLB model, Fama and Mac Beth find similar inconsistency This result is consistent with Rozeff and Kinney(1976), who find the risk premium for Janua