In the framework of CAPM, the aim of this paper is to analyse the power of fundamental variables to explain the differences in market return of a sample of firms listed on the Madrid Stock Exchange during the period 1991-1998. Our results reveal a significant relationship between returns and cash flow to price ratio. In addition, this ratio seems to capture the explanatory power of the other variables, such as earnings to price or book to market ratios. On the other hand, we find no evidence of any significant positive association between beta and returns. Finally, the greater power of the fundamentals, as compared to beta, to capture differences in returns is not explained by a January effect.

Key words: fundamental variables, CAPM, SUR.
JEL classification: G120.