The impact of heuristic and herding biases on portfolio construction and performance: the case of Greece

Abstract

Purpose

The purpose of this paper is to identify whether heuristic and herding biases influence portfolio construction and performance in Greece. The current research determines the situation among investors in Greece, a country with several economic problems for the last decade.

Design/methodology/approach

A survey has been conducted covering a group of active private investors. The relationship between private investors' behavior and portfolio construction and performance was tested using a multiple regression.

Findings

The authors find that heuristic variable affects private investor's portfolio construction and performance satisfaction level positively. A robustness test on a second group, consisting of professional investors, reveals that heuristic and herding biases affect investment behavior when constructing a portfolio.

Practical implications

The authors recommend investors to select professional's investment portfolio tools in constructing investment portfolios and avoid excessive errors, which occur due to heuristic. The awareness and understanding of heuristic and herding could be helpful for professionals and decision-makers in financial institutions by improving their performance resulting in more efficient markets.

Originality/value

The main contribution of this paper lies in the fact that it is the first study on two major behavioral dimensions that affect the investor's portfolio construction and performance in Greece. The rationale of the current research is that the results are helpful for investors in order to take rational, reliable and profitable decisions.

Citation

Gavrilakis, N. and Floros, C. (2022), "The impact of heuristic and herding biases on portfolio construction and performance: the case of Greece", Review of Behavioral Finance, Vol. 14 No. 3, pp. 436-462. https://doi.org/10.1108/RBF-11-2020-0295