Kothari and Watts provide evidence that earnings changes are positively associated with Beta changes Beaver and Morse (1978) analyse the usefulness of earnings yield as a measure of risk and earnings growth They argue that earnings yield would be decreasing in the Beta risk of a stock They also show that, perhaps better than as a risk measure, earnings yield forecasts earnings growth CAPM used for over two decades as a determinant of the expected rate of return on equity Recent studies provide evidence contradicting this These studies show that firm size, earnings yield, dividend yield, leverage and book to market ratio explain cross sectional variation in average return that Beta cannot. These studies are supported by research by Fama and French (1992)....
