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Diversification, Risk Aversion and Expectation in a Holdout Scenario

Author

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  • Wolfgang Eggert
  • Maximilian Stephan
  • Janine Temme
  • Handirk von Ungern-Sternberg

Abstract

We argue a holdout is not a destructive investor behaviour but a rational investment decision. This investment decision is characterised by the mean-variance approach. We investigate intercreditor conflict by diverse portfolio structure. We demonstrate that at some point during the Greek (2012) and Argentine (2005) debt restructuring programs it was reasonable for the investor to hold out. This model shows that the investment decision is based on the portfolio structure, risk aversion and expected payment of the debtor, so there is no free-rider behaviour. On the contrary, the investor harms herself when playing a destructive or uncooperative strategy.

Suggested Citation

  • Wolfgang Eggert & Maximilian Stephan & Janine Temme & Handirk von Ungern-Sternberg, 2015. "Diversification, Risk Aversion and Expectation in a Holdout Scenario," CESifo Working Paper Series 5527, CESifo.
    • Handle: RePEc:ces:ceswps:_5527
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    References listed on IDEAS

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    More about this item

    Keywords

    sovereign debt; holdout; mean-variance approach; collective action clause;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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