Behavioral Finance: Empirical Evidence Using Magic Formula in the Brazilian Stock Market

Abstract

Purpose: Explain the causes of inefficiencies in asset pricing on the Brazilian stock exchange through the behavioral finance hypothesis. Originality/value: Research made in the stock market over the last decades suggests that there is evidence of obtaining returns above the market average, through the purchase of undervalued assets, that is, when it has a low relation between the price and the fundamentals of the company. However, there is a notable discrepancy regarding the interpretation of causes among academics. The efficient markets hypothesis was presented, which is based on the premise of the strict rationality of economic agents. On the other hand, the behavioral finance theory was also discussed, which presents different assumptions. Design/methodology/approach: Using the historical quotes of the shares traded on B3, extracted from economática(r)'s database, the present work used the Magic Formula methodology to investigate the behavioral effect through the inefficiencies found in the pricing of these assets. Findings: The results suggest that the Brazilian stock market, in conformity with works of the same nature performed in markets in other countries, has inefficiencies in the pricing of assets, so that it is possible to obtain advantages from economic agents. The interpretation for the causes of such inefficiencies is based on the premises of behavioral finance, and points to the existence of a limitation in the rationalization of these agents.

Moderna Teoria de Portfólios e Magic Formula: Uma avaliação considerando os impactos da Covid-19

“…Em momentos como esse, nos quais a volatilidade do mercado aumenta consideravelmente, são postos em prova todos os métodos e modelos de se chegar a uma composição ideal de carteiras (MARKS, 2013). Dentro da discussão desse tema, existem diversas pesquisas realizadas com a finalidade de estudar qual o modelo mais adequado de otimização de carteiras de ações no mercado brasileiro, especialmente estudos que analisam os modelos da Moderna Teoria de Portfólios (MTP), de Markowitz; e da Magic Formula, de Greenblatt (BRUNI;FAMÁ, 1998;ZANINI;FIGUEIREDO, 2005;OLIVEIRA, 2013;OLIVEIRA, 2021;CAVALCANTE et al, 2016;ZEIDLER;ROCHMAN, 2015;XIMENES, 2020;MACHADO;GARTNER;MACHADO, 2017;VALENTE;FRANCISCO, 2020;ROMAN, 2021;SANTOS;SANFINS, 2019;KRETZMANN, 2016;DIMARZIO;MATIAS FILHO;FERNANDES, 2020;SANTOS, 2016).…”