The ournal of finance 0.05 or less, only 1 is greater than 0.1, and the standard errors are small relative to the range of the Bs(0.53 to 1.79 The B-sorted portfolios in Tables I and II also provide strong evidence against the B-measurement -error story. When portfolios are formed on pre- ranking As alone (Table Il), the post ranking Bs for the portfolios almost perfectly reproduce the ordering of the pre-ranking Bs. Only the 8 for portfolio 1B is out of line, and only by 0.02. Similarly, when portfolios are formed on size and then pre-ranking As (Table D), the post-ranking Bs in each size decile closely reproduce the ordering of the pre-ranking Bs The correspondence between the ordering of the pre-ranking and post ranking Bs for the B-sorted portfolios in Tables i and Ii is evidence that the post-ranking As are informative about the ordering of the true Bs. The problem for the SlB model is that there is no similar ordering in the average returns on the B-sorted portfolios. Whether one looks at portfolios sorted on B alone (Table II) or on size and then B(Table I), average returns are flat (Table Ir) or decline slightly (Table I) as the post-ranking Bs increase Our evidence on the robustness of the size effect and the absence of a relation between B and average return is so contrary to the SLB model that it behooves us to examine whether the results are special to 1968-1990.The appendix shows that nYSe returns for 1941-1990 behave like the NYSE AMEX, and NaSdAQ returns for 1963-1990; there is a reliable size effect over the full 50-year period, but little relation between B and average return Interestingly, there is a reliable simple relation between B and average return during the 1941-1965 period. These 25 years are a major part of the samples in the early studies of the SLB model of Black Jensen, and Scholes (1972)and Fama and MacBeth (1973). Even for the 1941-1965 period however, the relation between B and average return disappears when we control for size Ill. Book-to-Market Equity, E/P, and Leverage Tables I to III say that there is a strong relation between the average returns on stocks and size, but there is no reliable relation between average returns and B. In this section we show that there is also a strong cross sectional relation between average returns and book-to-market equity. If anything, this book-to-market effect is more powerful than the size effect. We also find that the combination of size and book-to-market equity absorbs the apparent roles of leverage and E/P in average stock returns A. A Table Iv shows average returns for July 1963 to December 1990 for portfolios formed on ranked values of book-to-market equity (BE/ME)or earnings-price ratio(E/P). The BE/ME and E/p portfolios in Table IV are formed in the same general way (one-dimensional yearly sorts) as the size and B portfolios in Table II. (See the tables for details