THE APPLICATION OF THE FAMA AND FRENCH MODEL IN THE GUAYAQUIL STOCK EXCHANGE

Abstract

Our main focus is to apply the Three Factor Asset Pricing Model of Fama and French in the Ecuadorian Market. The Fama and French model uses size, book to market ratio, and market risk to explain the returns of the stock. We selected fifteen years of monthly stock price data from thirty nine companies of the Guayaquil Stock Exchange we apply the model in order to verify if the three variables of the model can explain the stock returns. We used a time series regression in order to asses our data. Our results show that fourteen out of the thirty nine companies can be explained the model. Also out of the fourteen companies eight companies’ stock returns can be explained only by two variables out of the three, five companies’ stock returns can only be explained by one variable, and one company can be explained by the three variables of the Fama and French model.