Firm size, book-to-market and expected

Investment analysts have long been preoccupied with the idea of predicting future returnsbased on historic share price performance or company values. To this end, Fama andFrench (1992) found in their acclaimed study of U.S. markets that for the period 1963 to1990, market capitalisation (size) and book-to-market (BtM) combined to capture the crosssectionalvariation in average stock returns.This study was therefore conducted to determine whether size and BtM, independently orcombined, are effective in explaining the cross-section of average returns on stocks listed onthe JSE Securities Exchange South Africa (JSE) during the period between March 1996 andDecember 2008.On average, the full-period results indicate that 1) value stocks tend to be three times moreprofitable than growth stocks per unit of risk; 2) small stocks tend to be twice as profitableper unit of risk as large stocks, but that large stocks outperform small stocks on a valueweightedrisk-adjusted basis; and 3) small value portfolios tend to significantly outperformlarge growth portfolios, with returns that surpass those achieved independently by eithersmall size or high value portfolios