Efficient Market Hypothesis and Market Anomalies : Empirical Evidence from Nairobi Securities Exchange

The Efficient Market Hypothesis (EMH), the central assumption of modern investment theory, advocates the idea that information cannot produce extraordinary long-term returns in capital markets. The notion that stock markets are efficient, however, is called into question by market oddities. Anomalies behave differently over time; whereas some just occur once and then vanish, others do so repeatedly. The Efficient Market Hypothesis (EMH) states that returns on investments should be consistent with the level of risk that investors perceive, and that asset prices in the market at any one time should represent an objective reflection of all information that is currently accessible. The analysis is based on the desk review of the literature surrounding the stated subject area. One of the observations that were made was that the efficient market theory is refuted by the employment of calendar, fundamental, technical, and insider trading to generate anomalous profits. Most of the literature analyzed globally, regionally and from a Kenyan perspective clearly observes that both philosophically and empirically, investors and researchers disagree with EMH. New research directions have been made possible by the introduction of behavioral finance at the beginning of the twenty-first century