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  • 1.
    Holmberg, Ulf
    Umeå University, Faculty of Social Sciences, Department of Economics.
    Banking and the Determinants of Credit Crunches2011Report (Other academic)
    Abstract [en]

    Why do banks suddenly tighten the criteria needed for credit? Creditcrunches are often explained by the implementation of new regulatoryrules or by sudden drops in firm quality. We present a novel model ofan artificial credit market and show that crunches have a tendency tooccur even if firm quality remains constant, as well as when there areno new regulatory rules stipulating lenders capital requirements. Wefind evidence in line with the asset deterioration hypothesis and resultsthat emphasise the importance of accurate firm quality estimates. Inaddition, we find that an increase in the debts’ time to maturity reducesthe probability of a credit crunch and that a conservative lendingapproach is intrinsically related to the onset of crunches. Thus, ourresults suggest some up till now partially overlooked components contributingto the financial stability of an economy.

  • 2.
    Holmberg, Ulf
    Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE).
    Error Corrected DisequilibriumManuscript (preprint) (Other academic)
    Abstract [en]

    We derive an econometric disequilibrium model for time series data. This is done by error correcting the supply of some good. The model naturally separates between a continuously clearing market and a clearing market in the long-run such that we are able to obtain a novel test of clearing markets. We apply the model to the Swedish market for short-term business loans, and find that this market is characterized by a long-run non-market clearing equilibrium.

  • 3.
    Holmberg, Ulf
    Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
    Essays on credit markets and banking2012Doctoral thesis, comprehensive summary (Other academic)
    Abstract [en]

    This thesis consists of four self-contained papers related to banking, credit markets and financial stability.   

    Paper [I] presents a credit market model and finds, using an agent based modeling approach, that credit crunches have a tendency to occur; even when credit markets are almost entirely transparent in the absence of external shocks. We find evidence supporting the asset deterioration hypothesis and results that emphasize the importance of accurate firm quality estimates. In addition, we find that an increase in the debt’s time to maturity, homogenous expected default rates and a conservative lending approach, reduces the probability of a credit crunch. Thus, our results suggest some up till now partially overlooked components contributing to the financial stability of an economy.    

    Paper [II] derives an econometric disequilibrium model for time series data. This is done by error correcting the supply of some good. The model separates between a continuously clearing market and a clearing market in the long-run such that we are able to obtain a novel test of clearing markets. We apply the model to the Swedish market for short-term business loans, and find that this market is characterized by a long-run nonmarket clearing equilibrium.   

    Paper [III] studies the risk-return profile of centralized and decentralized banks. We address the conditions that favor a particular lending regime while acknowledging the effects on lending and returns caused by the course of the business cycle. To analyze these issues, we develop a model which incorporates two stylized facts; (i) banks in which lendingdecisions are decentralized tend to have a lower cost associated with screening potential borrowers and (ii) decentralized decision-making may generate inefficient outcomes because of lack of coordination. Simulations are used to compare the two banking regimes. Among the results, it is found that even though a bank group where decisions are decentralizedmay end up with a portfolio of loans which is (relatively) poorly diversified between regions, the ability to effectively screen potential borrowers may nevertheless give a decentralized bank a lower overall risk in the lending portfolio than when decisions are centralized.   

    In Paper [IV], we argue that the practice used in the valuation of a portfolio of assets is important for the calculation of the Value at Risk. In particular, a seller seeking to liquidate a large portfolio may not face horizontal demand curves. We propose a partially new approach for incorporating this fact in the Value at Risk and Expected Shortfall measures and in an empirical illustration, we compare it to a competing approach. We find substantial differences.

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  • 4.
    Holmberg, Ulf
    Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE).
    The Credit Market and the Determinants of CreditCrunches: An Agent Based Modeling ApproachManuscript (preprint) (Other academic)
    Abstract [en]

    This paper presents a credit market model and finds, using an agent based modeling approach, that credit crunches have a tendency to occur; even when credit markets are almost entirely transparent in the absence of external shocks. We find evidence supporting the asset deterioration hypothesis and results that emphasize the importance of accurate firm quality estimates. In addition, we find that an increase in the debt’s time to maturity, homogenous expected default rates and a conservative lending approach, reduces the probability of a credit crunch. Thus, our results suggest some up till now partially overlooked components contributing to the financial stability of an economy.

  • 5.
    Holmberg, Ulf
    et al.
    Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
    Lönnbark, Carl
    Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
    Lundström, Christian
    Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
    Assessing the profitability of intraday opening range breakout strategies2013In: Finance Research Letters, ISSN 1544-6123, E-ISSN 1544-6131, Vol. 10, no 1, p. 27-33Article in journal (Refereed)
    Abstract [en]

    Is it possible to beat the market by mechanical trading rules based on historical and publicly known information? Such rules have long been used by investors and in this paper, we test the success rate of trades and profitability of the Open Range Breakout (ORB) strategy. An investor that trades on the ORB strategy seeks to identify large intraday price movements and trades only when the price moves beyond some predetermined threshold. We present an ORB strategy based on normally distributed returns to identify such days and find that our ORB trading strategy result in significantly higher returns than zero as well as an increased success rate in relation to a fair game. The characteristics of such an approach over conventional statistical tests is that it involves the joint distribution of low, high, open and close over a given time horizon.

  • 6. Holmberg, Ulf
    et al.
    Sjögren, Tomas
    Hellström, Jörgen
    Comparing Centralized and Decentralized Banking: A Study of the Risk-Return Profiles of BanksManuscript (preprint) (Other academic)
    Abstract [en]

    This paper studies the risk-return profile of centralized and decentralized banks. We address the conditions that favor a particular lending regime while acknowledging the effects on lending and returns caused by the course of the business cycle. To analyze these issues, we develop a model which incorporates two stylized facts; (i) banks in which lending decisions are decentralized tend to have a lower cost associated with screening potential borrowers and (ii) decentralized decision-making may generate inefficient outcomes because of lack of coordination. Simulations are used to compare the two banking regimes. Among the results, it is found that asymmetric markets (in terms of the proportion of high ability entrepreneurs) tend to favor centralized banking while decentralized banks seem better at lending in the wake of an economic downturn (high probability of a recession). In addition, we find that even though a bank group where decisions are decentralized may end up with a portfolio of loans which is (relatively) poorly diversified between regions, the ability to effectively screen potential borrowers may nevertheless give a decentralized bank a lower overall risk in the lending portfolio than when decisions are centralized.

  • 7.
    Lönnbark, Carl
    et al.
    Umeå University, Faculty of Social Sciences, Department of Economics.
    Holmberg, Ulf
    Umeå University, Faculty of Social Sciences, Department of Economics.
    Brännäs, Kurt
    Umeå University, Faculty of Social Sciences, Department of Economics.
    Value at risk for large portfolios2011In: Finance Research Letters, ISSN 1544-6123, E-ISSN 1544-6131, Vol. 8, no 2, p. 18p. 59-68Article in journal (Refereed)
    Abstract [en]

    We argue that the practise used in the valuation of the portfolio is important for the calculation of the Value at Risk. In particular, when liquidating a large portfolio the seller may not face horizontal demand curves. We propose a partially new approach for incorporating this fact in the Value at Risk and in an empirical illustration we compare it to a competing approach. We find substantial differences.

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    fulltext
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