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Are Golfers Better Investment Managers?

Believe it or not, a pair of academics claims to have found “systematic evidence that institutional investors located near prestigious golf courses earn significantly better benchmark- and risk-adjusted return.” I kid you not.

The premise, apparently, is that knowledge gained during this social interaction improves their investment performance. While that’s not a completely implausible premise, the dots connected to arrive there are… well, judge for yourself.

According to a recent tongue-in-cheek analysis by Morningstar’s inimitable John Rekenthaler, since the researchers have no objective way to know which investment managers play golf, they relied instead on measuring how far managers live from golf courses — because the closer managers live to golf courses, the more likely they are to play golf.

Oops — apparently the researchers also lacked the home addresses of these investment managers, so instead they looked at the addresses of these investment managers’ employers. Meaning that we now are assuming that investment managers who work near golf courses are more likely to play golf.

Not content with those assumptions, they went further, assuming that the most/best knowledge would be gleaned from playing the most prestigious courses. And rather than rely on a subjective assessment there, the researchers assumed that the higher the greens fees, the more prestigious the course.

Still with me?

So, as Rekenthaler explains it, the researchers’ “distance-to-golf” measure is created by calculating the distance in miles from the workplace to each of these elite golf courses within a state, averaging those several distances to get a single figure, and then standardizing that figure to account for the different sizes of different states “by dividing by the value of state median distance-to-golf.”

Rekenthaler says that the authors do acknowledge a problem with assigning portfolio managers locations according to 13F filings, but claim to address that issue by studying how managers perform when a major golf tournament is held nearby. The authors find that “investor performance spikes in the years in which major championships (i.e., the U.S. Open or PGA Championship) are held within the state.”

And if that weren’t confusing enough, the authors also claim a connection between weather and investment performance, Rekenthaler says, finding that when precipitation in the managers’ regions is above average for a three-month period, that performance for the manager pool is weaker, at a statistically significant level, than when precipitation is below average. This, naturally, occurs because of the amount of golf that is played. “We find that their outperformance occurs during times of low precipitation around golf courses, evaporating when bad weather keeps golfers off the greens.”

The authors are PhDs, employed at Nanyang Technological University's business school. Their paper, “Heard on the Green: Sociability, Golf Courses, and the Performance of Institutional Investors,” is available online here.

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