Implication of efficient market hypothesis and arbitrage pricing theory in Chepkube market at the Kenya-Uganda border: A critique of literature review
Keywords:
arbitrage pricing theory, brokers, Chepkube market, efficient market hypothesisAbstract
Essentially, a market is the only point of convergence where actual exchanges between
knowledgeable willing buyers on one hand and innovative creators of goods and services happen,
and the end product is wealth, money and profit. The Efficient Market Hypothesis (EMH) is
founded on the premise that it is impossible to “beat the market” because market efficiency
causes existing asset prices to always incorporate and reflect all relevant information. In an
efficient capital market, the security prices reflect all the available information, and excess return
is not possible by trading on the basis of new information. Markets are broadly broken into two
components: markets for goods and commodities as well as the money markets. The Arbitrage
Pricing Theory is an asset pricing model that explains the cross-sectional variation in asset
returns or prices. This study analyses the applicability of both EMH and APT theories in
Chepkube; largely a goods and commodities market located at the Kenya-Uganda border in East
Africa. Desk research methodology was used for this study. The study interrogates the existing
literature in eliciting the required information necessary for the research findings. The research
findings suggest that only the weak and semi strong form of EMH exists at Chepkube while the
APT in its simplest form dominates the market trends as brokers seize, create, and control
pertinent information. The results provide customers, entrepreneurs, SMEs, researchers,
financiers, government regulators and other interest groups with insights on efficient markets; as
well as opportunities for further empirical research.
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