Holdout behaviour: a question of diversification, risk aversion and expectation

ABSTRACT

We argue a holdout is not a destructive investor behaviour but an investment decision. The decision is characterized 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 programmes, 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 possible payment of the debtor, so there is no free-rider behaviour. This is based on the fact that the investor harms herself due to destructive and uncooperative behaviour.

KEYWORDS:

• Sovereign debt
• holdout
• mean-variance approach

JEL CLASSIFICATION:

• H63
• H60
• H30

Disclosure statement

No potential conflict of interest was reported by the authors.