This paper by Associate Professor Joseph Chen and co-author Andrew Ang of Columbia Business School shows that a conditional one-factor model can account for the spread in the average returns of portfolios sorted by book-to-market ratios over the longrun from 1926 to 2001.

In contrast, earlier studies document strong evidence of a book-to-market effect using OLS regressions over post-1963 data. However, the betas of portfolios sorted by book-to-market ratios vary over time and in the presence of time-varying factor loadings, OLS inference produces inconsistent estimates of conditional alphas and betas. We show that under a conditional CAPM with time-varying betas, predictable market risk premia, and stochastic systematic volatility, there is little evidence that the conditional alpha for a book-to-market trading strategy is different from zero.