Investor behavior in evaluating portfolio performance: do investor behave rationally?
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Abstract
Financial theory assumes that investors are rational individuals. However, several empirical studies show that investors tend to act contrary to financial theory and cannot be explained in models based on investor rationality. How does investor behavior in making investment decisions relate to evaluating portfolio performance? This study applies mixed methods to prove portfolio performance evaluation through optimal portfolio formation and reveals its usefulness in making investment decisions. This study uses a single index model approach to evaluate portfolio performance and a structured interview method. The study sample is companies listed on the IDXHIDIV20 Index for the 2021 to 2023 period and investment manager as informants. These results prove that stock prices fluctuate in the same direction as the market index and each security has a different level of return and risk. Even though investors evaluate portfolio performance, excessive optimism, as a psychological factor, tends to control investor behavior in the investment decision making process. The research results support the behavioral financial theory that investors tend to act irrationally, because the decisions taken are not completely based on rational considerations but are also influenced by various kinds of biases that have an impact on investors' actions. However, investors' actions are seen as something normal. The results of the study contribute to the financial field to drive the efficiency of resource allocation and provide signals that reflect the value of the company
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How to Cite
Puspitaningtyas, Z. (2025). Investor behavior in evaluating portfolio performance: do investor behave rationally?. Enrichment : Journal of Management, 14(6), 1109-1118. https://doi.org/10.35335/enrichment.v14i6.2197
References
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Fathin, N. A., & Hersugondo, H. (2022). The Role of Psychological and Social Factors on Investment Decisions of Retail Inves-tors In Indonesia Stock Exchange. Jurnal Dinamika Manajemen, 13(2), 236–252. http://jdm.unnes.ac.id
Fathmaningrum, E. S., & Utami, T. P. (2022). Determinants of Investment Decisions in the Capital Market During the COVID-19 Pandemic. Journal of Accounting and Investment, 23(1), 147–169. https://doi.org/10.18196/jai.v23i1.13408
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Saputra, F. (2024). Financial Management Behavior of Millennials. International Journal of Business, Law, and Education, 5(1), 1153–1161. https://doi.org/10.56442/ijble.v5i1.532
Shivaprasad, S. P., Geetha, E., Raghavendra, Kishore, L., & Matha, R. (2022). Choosing the right options trading strategy: Risk-return Trade-off and Performance in Different Market Conditions. Investment Management and Financial Innovations, 19(2), 37–50. https://doi.org/10.21511/imfi.19(2).2022.04
Song, G., & Valencia, M. G. (2024). Digital Financial Literacy and Financial Behavior. International Journal for Multidiciplinary Research, 6(4), 1–7. https://doi.org/10.4018/979-8-3693-1750-1.ch003
Sudarsano, E. (2022). Formation of Optimal Stock Portfolio Using the Single Index Model in the Covid-19 Pandemic. EPRA International Journal of Economics, Business and Management Studies, August, 58–71. https://doi.org/10.36713/epra11103
Sudirman, W. F. R., Alif, M. I., & Pratiwi, A. (2023). Does Heuristic Bias Matter for Long and Short-Term Investment Decision-Making During the Covid-19 Pandemic? Journal of Indonesian Economy and Business, 38(3), 254–269. https://doi.org/10.22146/jieb.v38i3.3666
Wyanov, U., & Gandakusuma, I. (2023). Optimal Portfolio Formation Analysis vs . Single Index Model : 2018 – 2019 Before Crisis and 2020 – 21 During Crisis. Journal of Business Management, 10(2), 2018–2019.
Yildirim, H. (2017). Behavioral Finance or Efficient Market Hypothesis? International Journal of Academic Value Studies (Javstudies), 3(11), 151–158.
Yuliani, Y., Taufik, T., Malinda, S., & Umrie, R. H. (2024). Impact of financial literacy and financial behavior on investment among millennial in Indonesia: the moderating role of risk profile. International Journal of Financial Studies, Economics and Management, 3(1), 13–25. https://doi.org/10.61549/ijfsem.v3i1.137
Alviniussen, A., & Jankensggrd, Hh. (2018). The Risk-Return Tradeoff: A Six-Step Guide to Ending the Curse of Risk Appetite. SSRN Electronic Journal, November. https://doi.org/10.2139/ssrn.3174591
Amin, S., & Pirzada, S. S. (2014). Theory of Behavioral Finance and its Application to Property Market: A Change in Paradigm. Research Journal of Finance and Accounting, 5(13), 132–139. http://scholar.google.com/scholar?hl=en&btnG=Search&q=intitle:Theory+of+Behavioural+Finance+and+its+Application+to+Property+Market:+A+Change+in+Paradigm.#0
Balqis, V. P., Subiyanto, S., & Supian, S. (2021). Optimizing Stock Portfolio with Markowitz Method as a Reference for Investment Community Decisions. International Journal of Research in Community Services, 2(2), 71–76. https://doi.org/10.46336/ijrcs.v2i2.213
Bannier, C. E., Bofinger, Y., & Rock, B. (2023). The Risk-Return Tradeoff: Are Sustainable Investors Compensated Adequately? Journal of Asset Management, 24(3), 165–172. https://doi.org/10.1057/s41260-023-00303-6
Brown, S. J. (2020). The Efficient Market Hypothesis, the Financial Analysts Journal, and the Professional Status of Investment Management. Financial Analysts Journal, 76(2), 5–14. https://doi.org/10.1080/0015198X.2020.1734375
Faisal, F. I., Ruma, Z., & Rauf, A. (2023). Optimal Portfolio Formation with Single Index (Study on Stocks Listed on The IDX High Divided 20 Index on The Indonesia Stock Exchange Period 2019-2022). ECBIS: Economic and Business Journal, 1(5), 569–578.
Fathin, N. A., & Hersugondo, H. (2022). The Role of Psychological and Social Factors on Investment Decisions of Retail Inves-tors In Indonesia Stock Exchange. Jurnal Dinamika Manajemen, 13(2), 236–252. http://jdm.unnes.ac.id
Fathmaningrum, E. S., & Utami, T. P. (2022). Determinants of Investment Decisions in the Capital Market During the COVID-19 Pandemic. Journal of Accounting and Investment, 23(1), 147–169. https://doi.org/10.18196/jai.v23i1.13408
Hidayat, F. S., & Hartono, U. (2022). Factors affecting financial investment decisions: undergraduate student context. BISMA (Bisnis Dan Manajemen), 15(1), 40–59. https://doi.org/10.26740/bisma.v15n1.p40-59
Huda, S., & Sihombing, P. (2022). Analysis of Optimal Portfolio Formation Using Single Index Model and Stochastic Dominance on Sri-Kehati Index. European Journal of Business and Management Research, 7(1), 160–165. https://doi.org/10.24018/ejbmr.2022.7.1.1264
Kamoune, A., Ibenrissoul, N., Kamoune, A., Ibenrissoul, N., Finance, B., & International, T. (2022). Traditional versus Behavioral Finance Theory To cite this version : HAL Id : hal-03634756 Traditional versus Behavioral Finance Theory. IJAFAME: International Journal of Accounting, Finance, Auditing, Management & Economics, 3(2–1), 282–294.
Mahapatra, M. S., & Mishra, R. (2020). Behavioral influence and financial decision of individuals: A study on mental accounting process among Indian households. Cogent Economics and Finance, 8(1). https://doi.org/10.1080/23322039.2020.1827762
Nareswari, N., Balqista, A. S., & Negoro, N. P. (2023). The Impact of Behavioral Bias on Investment Decision-Making. Highlights in Business, Economics and Management, 15(1), 194–202. https://doi.org/10.54097/hbem.v15i.9348
Prosad, J. M., Kapoor, S., & Sengupta, J. (2015). Theory of Behavioral Finance. Handbook of Research on Behavioral Finance and Investment Strategies: Decision Making in the Financial Industry, May, 1–24. https://doi.org/10.4018/978-1-4666-7484-4.ch001
Ratnawati, R. (2024). Generation Z Investment Decisions Influenced by Financial Behavior: Mediated by Financial Literacy. East African Scholars Multidisciplinary Bulletin, 7(01), 1–8. https://doi.org/10.36349/easjmb.2024.v07i01.001
Rodriguez, J. M., Labong, D. C., & Palallos, L. (2024). The Mediation of Financial Behavior to Financial Literacy and Spending Habits of Gen Z : An Exploratory Factor Analysis. Journal of Global Awareness, 5(2), 1–21.
Saputra, F. (2024). Financial Management Behavior of Millennials. International Journal of Business, Law, and Education, 5(1), 1153–1161. https://doi.org/10.56442/ijble.v5i1.532
Shivaprasad, S. P., Geetha, E., Raghavendra, Kishore, L., & Matha, R. (2022). Choosing the right options trading strategy: Risk-return Trade-off and Performance in Different Market Conditions. Investment Management and Financial Innovations, 19(2), 37–50. https://doi.org/10.21511/imfi.19(2).2022.04
Song, G., & Valencia, M. G. (2024). Digital Financial Literacy and Financial Behavior. International Journal for Multidiciplinary Research, 6(4), 1–7. https://doi.org/10.4018/979-8-3693-1750-1.ch003
Sudarsano, E. (2022). Formation of Optimal Stock Portfolio Using the Single Index Model in the Covid-19 Pandemic. EPRA International Journal of Economics, Business and Management Studies, August, 58–71. https://doi.org/10.36713/epra11103
Sudirman, W. F. R., Alif, M. I., & Pratiwi, A. (2023). Does Heuristic Bias Matter for Long and Short-Term Investment Decision-Making During the Covid-19 Pandemic? Journal of Indonesian Economy and Business, 38(3), 254–269. https://doi.org/10.22146/jieb.v38i3.3666
Wyanov, U., & Gandakusuma, I. (2023). Optimal Portfolio Formation Analysis vs . Single Index Model : 2018 – 2019 Before Crisis and 2020 – 21 During Crisis. Journal of Business Management, 10(2), 2018–2019.
Yildirim, H. (2017). Behavioral Finance or Efficient Market Hypothesis? International Journal of Academic Value Studies (Javstudies), 3(11), 151–158.
Yuliani, Y., Taufik, T., Malinda, S., & Umrie, R. H. (2024). Impact of financial literacy and financial behavior on investment among millennial in Indonesia: the moderating role of risk profile. International Journal of Financial Studies, Economics and Management, 3(1), 13–25. https://doi.org/10.61549/ijfsem.v3i1.137