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When green turns exuberant: Bubble detection in clean-energy markets

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  • Malim Franco, João Pedro
  • Barasal Morales, Adriano
  • Poletti Laurini, Márcio

Abstract

We examine speculative bubbles in clean energy equity markets by connecting the strict local martingale (SLM) condition to observable parameters of the Andersen–Piterbarg stochastic volatility model. Using daily prices for the RENIXX World, S&P Global Clean Energy Index, Invesco Solar ETF (TAN), and CSI New Energy Index, we estimate model parameters via Hamiltonian Monte Carlo and identify bubbles when posterior evidence meets the SLM criterion. The RENIXX exhibits strong evidence of bubble dynamics, the S&P index shows moderate evidence, and TAN and CSI display weaker but non-negligible signals. The persistent placement within the bubble region across indices points to a sector-wide tendency toward exuberance. These findings have clear policy implications. Probabilistic SLM probabilities offer early-warning indicators for regulators by flagging subsidy- or theme-driven optimism and highlighting cross-market heterogeneity. Given the risks of capital misallocation, elevated volatility, and potential greenwashing, our results support coordinated policy design, enhanced market oversight, and continuous monitoring of speculative dynamics in clean-energy finance.

Suggested Citation

  • Malim Franco, João Pedro & Barasal Morales, Adriano & Poletti Laurini, Márcio, 2026. "When green turns exuberant: Bubble detection in clean-energy markets," Finance Research Letters, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:finlet:v:87:y:2026:i:c:s154461232502358x
    DOI: 10.1016/j.frl.2025.109109
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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