Swedish government lottery bonds have coupon payments determined by lottery. They offer a unique opportunity to study a security with uncertain payoffs having a known, observable distribution. The risk associated with the lotteries is idiosyncratic by construction and should not command a risk premium in equilibrium. The bonds are traded in two forms, allowing us to evaluate the rewards to bearing extra lottery risk. Despite its idiosyncratic nature, we find prices appear to reflect aversion to this risk. We evaluate the empirical determinants of this differential pricing and possible explanations for it.

Swedish government lottery bonds have coupon payments determined by lottery. They offer a unique opportunity to study a security with uncertain payoffs having a known, observable distribution. The risk associated with the lotteries is idiosyncratic by construction and should not command a risk premium in equilibrium. The bonds are traded in two forms, allowing us to evaluate the rewards to bearing extra lottery risk. Despite its idiosyncratic nature, we find prices appear to reflect aversion to this risk. We evaluate the empirical determinants of this differential pricing and possible explanations for it.

We investigate the impact of the Tax Reform Act of 1986 on the relative pricing of U.S. Treasury bonds. We obtain positive statistically and economically significant estimates for the implicit tax rates of a “representative” investor in the late 1970s and early 1980s. After the 1986 Tax Reform, the point estimates for the tax rate are close to zero. Tests for a regime shift associated with the 1986 Tax Reform support the hypothesis that this event largely eliminated tax effects from the term structure. We discuss both institutional and statutory explanations for this change.

The authors investigate the impact of the Tax Reform Act of 1986 on the relative pricing of U.S. Treasury Bonds. They obtain positive statistically and economically significant estimates for the implicit tax rates of a 'representative' investor in the late 1970s and early 1980s. After the 1986 tax reform, the point estimates for the tax rate are close to zero. Tests for a regime shift associated with the 1986 tax reform support the hypothesis that this event largely eliminated tax effects from the term structure. The authors discuss both institutional and statutory explanations for this change.

We investigate the impact of the Tax Reform Act of 1986 on the relative pricing of U.S. Treasury bonds. We obtain positive statistically and economically significant estimates for the implicit tax rates of a “representative” investor in the late 1970s and early 1980s. After the 1986 Tax Reform, the point estimates for the tax rate are close to zero. Tests for a regime shift associated with the 1986 Tax Reform support the hypothesis that this event largely eliminated tax effects from the term structure. We discuss both institutional and statutory explanations for this change.