What Drove the Mid-2000s Explosiveness in Alternative Energy Stock Prices? Evidence from U.S., European and Global Indices

39 Pages Posted: 4 Jan 2014 Last revised: 13 Jun 2015

See all articles by Martin T. Bohl

Martin T. Bohl

University of Muenster

Philipp Kaufmann

University of Muenster

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Date Written: May 2, 2015

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.

Keywords: Alternative Energy Stocks, Performance Measurement, Asset Price Bubbles, Explosive Price Behavior, Right-Tailed Unit Root Tests

JEL Classification: G11, G12, G15, Q42

Suggested Citation

Bohl, Martin T. and Kaufmann, Philipp and Siklos, Pierre L., What Drove the Mid-2000s Explosiveness in Alternative Energy Stock Prices? Evidence from U.S., European and Global Indices (May 2, 2015). International Review of Financial Analysis, Vol. 40, 2015, Available at SSRN: https://ssrn.com/abstract=2374447 or http://dx.doi.org/10.2139/ssrn.2374447

Martin T. Bohl

University of Muenster ( email )

Schlossplatz 2
D-48149 Muenster, D-48149
Germany

Philipp Kaufmann (Contact Author)

University of Muenster ( email )

Am Stadtgraben 9
Muenster, D-48143
Germany
+49 (0)251 - 83 22 846 (Fax)

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

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