Abstract
Lottery bonds are Danish Treasury obligations which make coupon payments by lottery. Professional traders have a tax preference for the coupon lottery, while investors are tax-neutral and take the other side of the trade. Consistent with tax-based explanations of abnormal ex-day returns, we find that prices fall by more than the lottery mean. Surprisingly, we also find that the price drop over the lottery decreases with the lottery variance. This suggests that investors do not like the lottery. In fact, the Danish Treasury has been able to sell more lottery bonds only by offering above market interest rates. Journal of Economic Literature Classification Numbers: G12, G35, G63.
| Original language | English |
|---|---|
| Pages (from-to) | 152-175 |
| Number of pages | 24 |
| Journal | Journal of Financial Intermediation |
| Volume | 11 |
| Issue number | 2 |
| DOIs | |
| State | Published - 2002 |
Keywords
- Diversifiable risk
- Downward-sloping demand curve
- Ex-dividend day
- Lottery bonds
- Tax differential
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