Performance analysis of the Magic Formula applied to the brazilian capital market

• Autor(a) principal: Conceição, Pétrick Maurat da
• Data de Publicação: 2022
• Tipo de documento: Artigo
• Idioma: por
• Título da fonte: Revista Produção Online
• Texto Completo: https://www.producaoonline.org.br/rpo/article/view/4385
• topic: Magic Formula; Joel Greenblatt; Hipótese do Mercado Eficiente; Value Investing; Magic Formula; Joel Greenblatt; Efficient market hypothesis; Value Investing

The present study aims to analyze the performance of themagic formula in the Brazilian capital market, gathering evidence on the existence of the premium value and efficiency of this methodology in the process of forming investment portfolios using fundamentalist indicators in the Brazilian capital market. Developed by Joel Greenblatt, the magic formula is a portfolio formation methodology that consists of choosing stocks with high Return on Capital and Earnings Yield, following the philosophy of Value Investing. Several portfolios were created in the period from 2006 to 2020 combining different number of assets per portfolio and different periods of permanence.All portfolios delivered return higher than the Ibovespa. The differences between the average annualized returns of the portfolios and the Ibovespaweresignificant, with the worst performing portfolio presenting average annualized return of 15.0% against 7.8% of the Ibovespa. The portfolios also achieved positive results after being adjusted for risk. The worst return-volatility ratio was 0.12, compared to -0.07 from Ibovespa. All the portfolios with the worst scores presented worse results than the Ibovespa, in line with expectations and the results observed in most works.