We used panel data set of 1729 observations (247 Malaysian companies listed on the Kuala Lumpur Stock Exchange for 1993-2000) to identify variables that could explain expected returns of Malaysian stocks. Our results are based on the fixed effects regression model as it performed better than the random effects model and OLS model without the firm effects. Results of the fixed-effect univariate regressions indicated that beta, size, book-to-market value (B/M) ratio, earnings-price (E/P) ratio and dividend yield individually played a significant role in explaining stock returns and payout and leverage had no effect. The explanatory power of size (natural log of market capitalisation) was the highest. The fixed-effect multivariate regression results showed that size was persistently a significant dominant variable together with other variables in explaining stock returns. Beta was found to have consistently a positive relation with stock returns by itself and together with other variables. But its explanatory power was less than size and other variables. Contrary to the results of Fama and French (1992), B/M ratio was not persistently a significant variable; its significance disappeared when we incorporated size and E/P ratio in regression.