This paper has analyzed whether the size and the book-to-market equity effects
are present on the Stock Exchange of Mauritius (SEM), using the Fama and French
(1993) model. The empirical results confirm that both effects are present and
statistically significant. The model also explains the variation in stock returns
on the SEM much better than the Capital Asset Pricing Model. For some portfolios,
the increase in explanatory power was four-fold. The paper cautions against using
beta as the only measure of systematic risk, for calculating the cost of capital
and evaluating the performance fund managers.