Diversification, Risk Aversion and Expectation in a Holdout Scenario

26 Pages Posted: 19 Oct 2015

See all articles by Wolfgang Eggert

Wolfgang Eggert

University of Freiburg - Institute of Public Finance; CESifo (Center for Economic Studies and Ifo Institute)

Maximilian Stephan

University of Freiburg

Janine Temme

University of Freiburg

Handirk von Ungern-Sternberg

University of Freiburg

Date Written: September 24, 2015

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.

Keywords: sovereign debt, holdout, mean-variance approach, collective action clause

JEL Classification: G180, H500, H630

Suggested Citation

Eggert, Wolfgang and Stephan, Maximilian and Temme, Janine and Ungern-Sternberg, Handirk von, Diversification, Risk Aversion and Expectation in a Holdout Scenario (September 24, 2015). CESifo Working Paper Series No. 5527, Available at SSRN: https://ssrn.com/abstract=2676022 or http://dx.doi.org/10.2139/ssrn.2676022

Wolfgang Eggert (Contact Author)

University of Freiburg - Institute of Public Finance ( email )

D-79098 Freiburg
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Maximilian Stephan

University of Freiburg ( email )

Fahnenbergplatz
Freiburg, D-79085
Germany

Janine Temme

University of Freiburg

Fahnenbergplatz
Freiburg, D-79085
Germany

Handirk von Ungern-Sternberg

University of Freiburg ( email )

Fahnenbergplatz
Freiburg, D-79085
Germany

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