Implication of efficient market hypothesis and arbitrage pricing theory in Chepkube market at the Kenya-Uganda border: A critique of literature review

Abstract

Essentially, a market is the only point of convergence where actual exchanges betweenknowledgeable 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) isfounded on the premise that it is impossible to “beat the market” because market efficiencycauses existing asset prices to always incorporate and reflect all relevant information. In anefficient capital market, the security prices reflect all the available information, and excess returnis not possible by trading on the basis of new information. Markets are broadly broken into twocomponents: markets for goods and commodities as well as the money markets. The ArbitragePricing Theory is an asset pricing model that explains the cross-sectional variation in assetreturns or prices. This study analyses the applicability of both EMH and APT theories inChepkube; largely a goods and commodities market located at the Kenya-Uganda border in EastAfrica. Desk research methodology was used for this study. The study interrogates the existingliterature in eliciting the required information necessary for the research findings. The researchfindings suggest that only the weak and semi strong form of EMH exists at Chepkube while theAPT in its simplest form dominates the market trends as brokers seize, create, and controlpertinent information. The results provide customers, entrepreneurs, SMEs, researchers,financiers, government regulators and other interest groups with insights on efficient markets; aswell as opportunities for further empirical research.