Resumo

The weak-form of the Efficient Market Hypothesis (EMH) states that price changes follow a random walk dynamic, thus implying the unpredictability of security returns based on historical data. Many theoretical models in finance are constructed under the assumption of the weak-form of market efficiency. Hence, the evaluation of price information efficiency plays a crucial role for investors, policymakers and all market participants. This is of particular relevance when the market suffers the negative impacts of systemic crises like the COVID-19 pandemic.

The aim of this work is to evaluate the adherence of the Brazilian stock market to the weak-form of market efficiency. Multifractal detrended fluctuation analysis (MF-DFA) is used to measure the presence of multifractal behavior for price returns from the stocks traded at the Brazilian stock exchange, B3. It is also an objective examining how efficiency changes across industries, as information efficiency may change for different sectors. In addition, the impacts of the COVID-19 outbreak on the B3 level of efficiency is measured through the fractal analysis.

Proposed by Fama (1965), the EMH essentially assumes that asset prices reflect all relevant information, which are available to all market participants. Particularly, EMH on its weak-form states that price changes follow a random walk dynamic, thus implying the unpredictability of future trends. An alternative approach to test the random walk dynamics for a time series is the MF-DFA, developed by Kantelhardt et al. (2002), a technique from econophysics that measures the presence of multifractal behavior.

Based on daily closing prices of all traded stocks at the B3, for the period from January 2, 2015 to May 31, 2022, MF-DFA technique is applied to measure the possibility of a multifractal behavior for the asset returns series. Considering the generalized Hurst exponents, a market deficiency measure (MDM) is calculated to rank the series in terms of efficiency. Thus, the degree of efficiency is evaluated according to the stocks industry sectors and for the periods before and after the COVID-19 pandemic.

The results demonstrated that the Brazilian stock market is multifractal, deviating from the weak-form of market efficiency. After the COVID-19 outbreak, B3 efficiency has changed. Precisely, the stocks traded at B3 became more inefficient, indicating a negative impact of the sanitary crisis on the market efficiency for the evaluated Brazilian equity shares. Moreover, all industry sectors also demonstrated diverging results from the weak-form of market efficiency, before and after the COVID-19 pandemic. However, each industry sector responds at a different degree to the pandemic.

Brazilian stock prices display inefficient behavior during the evaluated period, which brings out the possibility to forecast future pricing movements based on historical information. Thus, financial decisions that assumes the random walk hypothesis must be thoughtfully revised, especially when important theoretical financial models are based on this assumption. This is quite relevant during the COVID-19 phase, where the stocks became less efficient. It was also found that the level of efficiency in the Brazilian stock market is associated with the industry sector.

Fama, E. (1965). The behavior of stock-market prices. The Journal of Business, 38, 34-105. Kantelhardt, J. W., Zschiegner, S., Koscielny-Bunde, E., Bunde, A., Havlin, S., & Stanley, E. (2002). Multifractal detrended fluctuation analysis of nonstationary time series. Physica A: Statis- tical Mechanisms and its Applications, 316(1-4), 87-114.