The Journal of finance Finally, Basu(1983)shows that earnings-price ratios(E/P) help explain the cross-section of average returns on U.S. stocks in tests that also include size and market B. Ball (1978)argues that E/P is a catch-all proxy for unnamed factors in expected returns; E/P is likely to be higher (prices are lower relative to earnings) for stocks with higher risks and expected returns, whatever the unnamed sources of risk Balls proxy argument for E/P might also apply to size(ME), levera book-to-market equity. All these variables can be regarded as different ways scale stock prices, to extract the information in prices about risk and expected returns(Keim (1988)). Moreover, since E/P, ME, leverage, and BE/ME are all scaled versions of price, it is reasonable to expect that some of them are redundant or describing average returns. Our goal is to evaluate the joint roles of market B ize,E/P, leverage, and book-to market equity in the cross-section of average returns on NYSE, AMEX, and NaSDAQ stocks Black, Jensen, and Scholes( 1972)and Fama and MacBeth(1973) find that as predicted by the SLB model, there is a positive simple relation between average stock returns and B during the pre- 1969 period. Like Reinganum (1981) and Lakonishok and Shapiro(1986), we find that the relation between 6 and average return disappears during the more recent 1963-1990 period even when 3 is used alone to explain average returns. The appendix shows that the simple relation between B and average return is also weak in the 50-year 1941-1990 period In short, our tests do not support prediction of the SLB model, that average stock returns are positively related to market Bs Unlike the simple relation between B and average return, the univariate elations between average return and size, leverage, E/P, and book-to-market equity are strong. In multivariate tests, the negative relation between size and average return is robust to the inclusion of other variables. The positive relation between book-to-market equity and average return also persists in competition with other variables. Moreover, although the size effect has attracted more attention, book-to market equity has a consistently stronger role in average returns. Our bottom-line results are:(a)b does not seem to help explain the cross-section of average stock returns, and (b) the combina ion of size and book-to-market equity seems to absorb the roles of leverage and E/P in average stock returns, at least during our 1963-1990 sample If assets are priced rationally, our results suggest that stock risks are multidimensional. One dimension of risk is proxied by size, ME.Another dimension of risk is proxied by BE/ME, the ratio of the book value of common equity to its market value It is possible that the risk captured by BE/ME is the relative distress factor of Chan and Chen(1991). They postulate that the earning prospects of firms are associated with a risk factor in returns. Firms that the market judges to have poor prospects, signaled here by low stock prices and high ratios of book-to-market equity, have higher expected stock returns(they are penalized with higher costs of capital) than firms with strong prospects. It is