This paper tests how financial performance indicators and combined ESG score for large-cap stocks impact on stock return. In particular, we examine how market capitalization, price to book value, Sharpe ratio and ESG score of large-cap firms in Europe are related to their stock performance. We consider a panel data consisting of six European countries—Portugal, Italy, Greece, Spain, France and Germany—for the period 2010–2020. For Greek and French firms, a firm’s size tends to negatively affect its stock returns. The investors in European countries (except Italy) do not jeopardize their returns by investing in highly ESG scoring firms. We argue that the benefit of not investing in highly ESG-scoring firms might lead investors to select smaller size companies with a higher price to book value and higher Sharpe ratio, as it is more likely to generate higher returns. Moreover, Italian firms are more susceptible to ESG issues, as ESG performance and stock return seem to have a significant negative correlation. This valuable result was confirmed by conducting a robustness test for Europe as a whole using the Euronext100 index. Finally, we find no evidence that ESG motivates herding in our selected sample (this is not the case for Greece and France), while we report evidence of ESG herding behavior during the Covid-19 outbreak in Portugal, Italy and Greece.

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.

We here analyze the factor loadings given by the CAPM, the Fama–French three (FF3), and the five-factor model (FF5), and test the performance and the validity of adding two more factors (volatility and dispersion of returns) to the FF5 factor model of European index-based ESG leaders’ portfolios. Our ESG leaders’ portfolios generated significant negative alphas during 2012–2022, corroborating the literature’s negative argument. The negative abnormal returns of ESG leaders’ portfolios are homogeneous across the three ESG pillars. We conclude that European ESG leaders’ portfolios are biased toward large cap and value stocks with robust operating profitability and against aggressive investments. As robustness tests, we examine Global ESG leaders’ index-based portfolios, producing the same results but with reduced importance in some loading factors like profitability and investment strategy. Furthermore, we deduced that European and Global ESG leaders’ portfolios tilt towards volatility and herding bias.

Purpose: We investigate herding behavior and explore how risk aversion interacts with herding in a sample of selected sustainability indices. Furthermore, we evaluate volatility co-movements and dynamic and time-varying correlations of two notable indicators: the cross-sectional absolute deviation of returns (CSAD) and the risk aversion index (RAI). Moreover, we explore a spillover mechanism (in the short and long run) of risk aversion to sustainable investing. Design/methodology/approach: Our study uses daily prices from 01/06/2012 to 15/07/2022 obtained from S&P Dow Jones Indices. We use autoregressive - Glosten, Jagannathan, and Runkle generalized autoregressive conditional heteroscedastic (AR(1)-GJR GARCH) methodologies to measure the impact of cross-sectional absolute deviation of returns (CSAD) and risk aversion (RAI) indicators on the conditional variance of selected sustainability indices. Furthermore, we employ dynamic conditional correlation with generalized autoregressive conditional heteroscedasticity, generalized autoregressive conditional heteroscedasticity generalized autoregressive conditional heteroscedasticity mixed data sampling and dynamic conditional correlation with mixed data sampling models to examine any dynamic correlation, spillover volatility effects and the predictability stance of the CSAD and the RAI factors on sustainable investing. Findings: Our empirical outcomes capture no-herding behavior but display herding on the risk aversion indicator. The cross-sectional dispersion of returns positively affects the conditional variance of all selected sustainable markets, besides emerging markets, while the risk aversion factor negatively influences the conditional variance for Europe and the USA. We have identified long-term contagion effects relating to the variability of returns in our sample, with the exception of emerging markets. Practical implications: The dispersion of returns can predict the swings of long-term volatilities of Nordic and Europe markets, while the risk aversion factor can predict the long-run volatilities of sustainable markets except Nordic. Originality/value: The current study presents, for the first time in the sustainable finance literature, an empirical analysis of herding and risk aversion in sustainable investment returns over time. Our findings offer valuable insights to fund managers, finance professionals and investors, providing them with an opportunity to proactively manage their portfolios and reduce financial risk by understanding the volatility behavior of sustainable investing. Furthermore, it is crucial to explore and understand how the dispersion of returns and risk aversion interact with sustainable markets for the construction of optimal portfolios.