Can behavioural factors influence portfolio construction? Evidence from Ghana

Purpose This study examines how behavioural and firm-specific factors influence investors' portfolio diversification decisions in Ghana's capital market, a frontier market characterised by informational frictions and retail investor dominance. It evaluates whether classical portfolio theories adequately explain diversification behaviour or whether behavioural considerations play a more decisive role. Design/methodology/approach Using survey data collected from investment professionals and market participants in Ghana, the study applies factor analysis to identify key behavioural and firm-specific dimensions and employs a logistic regression model to examine their influence on portfolio diversification preferences. Findings The results show that portfolio diversification decisions are significantly shaped by behavioural and perceptual factors. In particular, perceived stability of past performance and perceived correlation of past returns exert the strongest positive influence on diversification preferences. Personal industry affiliation, credit rating and earnings variability also significantly affect diversification decisions, while socio-demographic characteristics such as gender and work experience are not statistically significant. These findings indicate that investors rely more on subjective assessments and behavioural cues than on purely rational risk–return considerations. Originality/value This study contributes to the behavioural finance literature by providing portfolio-level evidence from a frontier market, an area that remains underexplored in existing research. By explicitly linking behavioural perceptions to diversification outcomes, the study demonstrates the limitations of the classical portfolio theory in frontier markets and offers practical insights for investors, financial institutions and regulators seeking to improve portfolio decision-making and investor education in Ghana.