Scientific Evidence
Two financial economists, Lobe and Hoelzl, have analysed the main driving factors for the immense success of Premium Bonds. One in three Britons invest in Premium Bonds. The thrill of investment is significantly boosted by enhancing the skewness of the prize distribution. Using data collected over the past fifty years they find that the bond bears relatively low risk by conventional risk measures.
Aaron Brown discusses premium bonds in comparison with equity-linked, commodity-linked and other "added risk" bonds. His conclusion is that it makes little difference, either to an investor or from a theoretical finance perspective, whether the added risk comes from a random number generator or a financial security price.
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