Abstract

http://ssrn.com/abstract=992794
 
 

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Why are British Premium Bonds so Successful? The Effect of Saving With a Thrill


Sebastian Lobe


University of Regensburg; Center of Finance

Alexander Hölzl


University of Regensburg

April 2007


Abstract:     
The British Premium Bond, which offers a monthly uncertain return solely based on a lottery, is an immense success. Why? We find that the bond bears relatively low risk in terms of CARA and CRRA utility. Since prizes are tax-free, the higher an individual's tax bracket, the more it pays to invest in the lottery bond. However, we demonstrate that the CARA and CRRA coefficients (before and after taxes) do not directly influence sales of the Premium Bond. Rather, our ARIMA model strongly suggests that prize skewness and the maximum holding amount are the salient influencing factors.

Number of Pages in PDF File: 42

Keywords: Premium Bond, lottery bond, risk tolerance, skewness

JEL Classification: G12, G11

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Date posted: March 19, 2008  

Suggested Citation

Lobe, Sebastian and Hölzl, Alexander, Why are British Premium Bonds so Successful? The Effect of Saving With a Thrill (April 2007). Available at SSRN: http://ssrn.com/abstract=992794 or http://dx.doi.org/10.2139/ssrn.992794

Contact Information

Sebastian Lobe (Contact Author)
University of Regensburg ( email )
Universitaetsstrasse 31
Regensburg D-93053
Germany
+49 (0)941 943-2727 (Phone)
+49 (0)941 943-4979 (Fax)
HOME PAGE: http://www-cgi.uni-regensburg.de/Fakultaeten/WiWi/roeder/lobe.htm
Center of Finance ( email )
Regensburg
Germany
HOME PAGE: http://www.center-of-finance.de/en/pd-dr-sebastian-lobe
Alexander Hölzl
University of Regensburg ( email )
93040 Regensburg
D-93040 Regensburg
Germany
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