In this paper, we explore the relationship of firm-size and book-to-market equity with stock returns in the Tehran Stock Exchange (TSE). We apply two different popular asset pricing models, the one factor CAPM and the three-factor Fama and French (1993) model, to individual stock returns and to size/book-to-market sorted portfolios. We find both size and book-to-market effects to be significant, but the size effect has a higher explanatory power. We also find the return of big and growth firms is higher than small and value firms returns in Tehran Stock Exchange (TSE). Our results reveal some new empirical regularities in the TSE and support the Fama and French findings to justify models for additional risk factors in returns.
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