Let’s switch again! Testing for speculative oil price bubbles based on rotated market expectations

Econometric tests for bubbles suffer from mis-specified and mis-measured fundamentals. However, such tests can be carried out without using any unobservable fundamental, but relying on financial market expectations instead. We revisit the case of oil price bubbles and investigate the role of expectations. While we still find no evidence for speculative bubbles when using rotated expectations, striking differences arise regarding implied risk premia. Using raw market expectations leads to explosive risk premia which are implausible, both theoretically and empirically, while the opposite is found for rotated market expectations. • Econometric bubble testing without fundamentals. • Instead, financial market expectations are used. • No evidence in favor of a speculative oil price bubble is found. • This result remains robust for rotated expectations. • Only rotated market expectations imply non-explosive risk premia.