Sorting stocks into 10 portfolios based on their "value" or book-to-market ratio, stocks with lower prices relative to book equity ("value) have higher average returns. It would make sense that these stocks have higher betas too -- companies that are down on their luck will likely go out of business in the next market downturn. Looking across 10 portfolios sorted by book-to-market, do the value stocks have a higher market or equivalently CAPM betas, commensurate with their higher average returns?

1. No, the market betas are all about one in the Fama-French three-factor regression.

2. Yes, that's what the h line in the graph shows.

3.No, amazingly they all seem to have about the same beta when regressed only on the market.

4.Yes, value stocks are riskier. The graphs show that average returns line up well with market betas.

5.Yes, because the line connecting market betas is very straight.