Heard On The Green: Sociability, Golf Courses, And The Performance Of Institutional Investors – ValueWalk Premium
Institutional Investors

Heard On The Green: Sociability, Golf Courses, And The Performance Of Institutional Investors

Heard On The Green: Sociability, Golf Courses, And The Performance Of Institutional Investors

Chishen Wei

Nanyang Technological University (NTU) – Division of Banking & Finance

Lei Zhang

Nanyang Technological University (NTU)

July 31, 2015


We hypothesize that golf courses act as important venues for investors to build social connections and gather investment information. We find systematic evidence that institutional investors located near prestigious golf courses earn significantly better benchmark- and risk-adjusted return. We argue that this reflects the benefits of sociability as our findings are stronger for golf courses with reciprocal guest policies that allow wider participation and increase when major golf championships rotate to the state. Their portfolios holdings reveal hallmarks of informed trading – greater concentration, greater selectivity/activity, and more frequent turnover. To establish a causal link, we exploit the fact that golf is a weather-dependent outdoor activity. We find that their outperformance occurs during times of low precipitation around golf courses, evaporating when bad weather keeps golfers off the greens.

Heard On The Green: Sociability, Golf Courses, And The Performance Of Institutional Investors – Introduction

Social connections significantly affect economic and financial decisions. Recent studies show that social connections influence the portfolio holdings of professional investors. These studies rise to the challenge of measuring social networks by analyzing school ties (Cohen, Frazzini, and Malloy, 2008) or identifying word-of-mouth communications (Hong, Kubik, and Stein, 2005; Pool, Stoffman, and Yonker, 2014).

In this study, we add to this growing literature by identifying country clubs and golf courses as important venues that stimulate social activity and information flow. We hypothesize that institutional investors located close to prestigious golf courses have better access to information and as a result generate better performance.

There are at least three reasons why golf courses may act as important gathering places for building social connections, particularly for the finance industry. First, golf is one of the most popular leisure activities among high net worth individuals. According to demographic statistics in 2012, the total number of golfers in the U. S. is 29 million,1 representing 9.6% of the total population. Golfers have an average household income of $95,000, are predominantly male (77.5%), and are likely to own securities (83%). 79 percent of golfers have a personal net worth over $100,000.

Second, golf and country clubs are popular social activity centers. For example, charity events, weddings, industry conventions, business association meetings, and golf tournaments 2 are often held at prestigious golf courses, providing opportunities for members of the financial community from different places to mingle and build social connections. Corporate executives are also avid golfers. Golf Digest regularly publishes rankings of the top 200 U.S. CEOs. The CEOs surveyed by Golf Digest report that 35 percent of their golf rounds are with business associates, and 71 percent have conducted business with someone they met when playing a round of golf.

Third, anecdotal evidence suggests that golf courses are natural venues for asset managers to interact with business partners. Peter Lynch, long-time manager of Fidelity Magellan Fund, recalls of his golf caddying experience: “Those years on the golf course were a great education, the next best thing to being on the floor of the exchange.” John Spooner, a Boston wealth manager, says that “The truth is a tremendous amount of business gets done on the golf course…You have a captive audience for five hours. Tongues get loosened with the sport and the camaraderie.”

Using a comprehensive database of 15,479 golf courses in the United States, we track the performance of institutional investors located close to “prestigious” golf courses. Our empirical strategy focuses on prestigious golf courses because these venues offer better opportunities to meet and socialize with other business professionals. Our assumption is that investors are more likely to access nearby prestigious golf courses. The conversations and connections they make on the greens may help investors gather and ascertain valuable information to guide their investment decisions and generate better performance.

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