This paper investigates the relationship between average stock returns and market beta, book-to-market equity, and size in five Pacific-Basin markets in 1990’s. : Korea, Hong Kong, Singapore, Malaysia, Thailand. In all the markets examined, the relation between market beta and average return is weak. With the exception of a few cases, Firm size and book-to-market equity don’t seem to explain the cross-sectional variation of stock returns during whole test-period. Both size effect and B/M effect in Korea and either of the effects in Hong Kong and Malaysia were observable until the mid 1990’s. These effects, however, disappeared or the degree of these effects became weak in the last three years. In this paper, three-factor model that includes risk factors for relative distress is also adopted to explain size effect and B/M effect.
