Why are British Premium Bonds so Successful? The Effect of Saving With a Thrill
42 Pages Posted: 19 Mar 2008
Date Written: 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 Classification: G12, G11
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Preferences Toward Risk and Asset Prices: Evidence from Russian Lottery Bonds
By Andrey Ukhov
-
Using Financial Innovation to Support Savers: From Coercion to Excitement
By Peter Tufano and Daniel Schneider
-
Making Savers Winners: An Overview of Prize-Linked Savings Products
By Melissa S. Kearney, Peter Tufano, ...
-
Making Savers Winners: An Overview of Prize-Linked Saving Products
By Melissa S. Kearney, Peter Tufano, ...
-
Tax Arbitrage with Risk and Effort Aversion - Swedish Lottery Bonds 1970-1990
-
Tax Arbitrage with Risk and Effort Aversion -- Swedish Lottery Bonds 1970-1990
-
Tax Arbitrage with Risk and Effort Aversion Swedish Lottery Bonds 1970-1990
-
Consumer Demand for Prize-Linked Savings: A Preliminary Analysis
By Nick Maynard, Jan‐emmanuel De Neve, ...