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What drove the mid-2000s explosiveness in alternative energy stock prices? Evidence from U.S., European and global indices

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  • Bohl, Martin T.
  • Kaufmann, Philipp
  • Siklos, Pierre L.

Abstract

Soaring prices in European alternative energy stocks and their subsequent tumble have attracted attention both from investors and academics. We extend recent research to an international setting and analyze whether the explosive price behavior of the mid-2000s was driven by rising crude oil prices and overall bullish market sentiment. Inflation-adjusted U.S. alternative energy stock prices do not exhibit signs of explosiveness. By contrast, we find strong evidence of explosive price behavior for European and global sector indices, even after controlling for a set of explanatory variables. Interestingly, while the sector indices plunged with the outbreak of the global financial crisis, idiosyncratic components continued to rise and did not start to decline until after world equity markets had already begun to recover in 2009. This finding suggests a substantial revaluation of alternative energy stock prices in light of intensifying sector competition and shrinking sales margins and casts some doubts on the existence of a speculative bubble. Nevertheless, we observe temporary episodes of explosiveness between 2005 and 2007 followed by rapid collapses, indicating the presence of some irrational exuberance among investors.

Suggested Citation

  • Bohl, Martin T. & Kaufmann, Philipp & Siklos, Pierre L., 2015. "What drove the mid-2000s explosiveness in alternative energy stock prices? Evidence from U.S., European and global indices," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 194-206.
  • Handle: RePEc:eee:finana:v:40:y:2015:i:c:p:194-206
    DOI: 10.1016/j.irfa.2015.05.018
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    1. repec:eee:eneeco:v:65:y:2017:i:c:p:172-182 is not listed on IDEAS
    2. repec:kap:jbuset:v:145:y:2017:i:2:d:10.1007_s10551-015-2850-7 is not listed on IDEAS
    3. Martijn (M.I.) Droes & Ryan van Lamoen & Simona Mattheussens, 2017. "Quantitative Easing and Exuberance in Government Bond Markets: Evidence from the ECB's Expanded Assets Purchase Program," Tinbergen Institute Discussion Papers 17-080/IV, Tinbergen Institute.

    More about this item

    Keywords

    Alternative energy stocks; Performance measurement; Asset price bubbles; Explosive price behavior; Right-tailed unit root tests;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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