Abstract

References (38)

Beta

Download | Share | Email | Add to Briefcase | Buy Hard Copy

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

Sebastian Lobe
University of Regensburg - Faculty of Business, Economics & Information Systems

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.

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

JEL Classifications: G12, G11

Working Paper Series

Date posted: March 19, 2008 ; Last revised: 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

Export to: Export Citation What's this?

Contact Information

Sebastian Lobe (Contact Author) University of Regensburg - Faculty of Business, Economics & Information Systems ( email ) Universitaetsstrasse 31 Regensburg D-93053 Germany
Alexander Hölzl University of Regensburg ( email ) 93040 Regensburg D-93040 Regensburg Germany

Abstract

References (38)

Date posted: March 19, 2008 ; Last revised: March 19, 2008

Suggested Citation

Contact Information

Sebastian Lobe (Contact Author)

Alexander Hölzl