Semi-strong Form Of Efficient Market Hypothesis Research Articles

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

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.

Price Earning Ratio Effect : A Test of the Semi Strong Form of Efficient Market Hypothesis in Indian Stock Market

Proponents of Semi strong form of Efficient Market Hypothesis (EMH) claim that security prices fully reflect all publicly available information in a rapid and unbiased manner. Opponents of this Hypothesis question its validity by explaining various anomalies in stock markets. One such anomaly that they elucidate is Price Earning (P/E) ratio Effect, which is based on the premise that P/E ratios are indicators of the investment performance of a security and low P/E stocks have a tendency to outperform high P/E stocks even after adjusting for underlying risks.The purpose of the study is to empirically test the relationship between P/E ratios and equity returns in Indian stock market based on monthly stock returns of 90 companies during the period April 2006 – June 2012 and thereby to examine the validity of semi strong form of EMH. The study applies Jensen, Sharpe and Treynor measures, which are based on Sharpe-Linter Capital Asset Pricing Model (CAPM) to test the risk- return relationships of these portfolios and to compare whether portfolio of low P/E stocks outperforms the portfolio of High P/E stocks. The study attempts to test, if there is any statistically significant difference between the returns of such a portfolio and a simple buy and old strategy. The study also attempts to examine if there is any statistically significant difference between the returns of Lowest P/E portfolio and Highest P/E portfolio using an alternative specification of CAPM. The findings of the study explain the superior performance of low P/E portfolio to high P/E portfolio, indicating the premium associated with cheap stock.