Abstract
This paper proposes a new strategy for portfolio selection in the Brazilian equity market with the use of multifractal detrended fluctuation analysis (MF-DFA) as a mechanism to select assets based on their efficiency levels. Empirical analysis uses daily prices to compose minimum variance (MVP) and maximum Sharpe ratio (MSR) long-only portfolios, and also includes their performances during the COVID-19 pandemic. MF-DFA indicated a multifractal nature for asset price returns, generally associated with long-term persistence. The strategy using the most efficient equities resulted in portfolios with lower levels of systematic risk (betas), indicating that the lack of efficiency is related to higher sensitivity to macroeconomic and conjuncture changes. The MVP portfolio produces higher performance than the alternatives in terms of risk and return. Finally, during the COVID-19 pandemic, besides its consistent negative impacts, MVP and MSR portfolios verified lower losses than the IBOVESPA.
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