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

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. • The paper tests for bubbles in clean energy using a no-arbitrage martingale approach. • A stochastic volatility model maps bubble conditions to observable price dynamics. • RENIXX shows strong bubble evidence; S&P Clean Energy shows moderate signals. • Results reveal a sector-wide tendency toward exuberance in green asset prices. • Findings call for rigorous bubble diagnostics in sustainable finance oversight.

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Publication Details

Journal
Finance research letters
Published
2025-11-25
DOI
https://doi.org/10.1016/j.frl.2025.109109
Citations
1
Primary Topic
Market Dynamics and Volatility
Type
article
Field-Weighted Citation Impact
3.13
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article

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

Márcio Poletti Laurini, Adriano Barasal Morales, João Pedro Malim Franco
1 citations
Finance research letters
Market Dynamics and Volatility
3.13
article

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

Márcio Poletti Laurini, Adriano Barasal Morales, João Pedro Malim Franco
article en
1 citations

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. • The paper tests for bubbles in clean energy using a no-arbitrage martingale approach. • A stochastic volatility model maps bubble conditions to observable price dynamics. • RENIXX shows strong bubble evidence; S&P Clean Energy shows moderate signals. • Results reveal a sector-wide tendency toward exuberance in green asset prices. • Findings call for rigorous bubble diagnostics in sustainable finance oversight.

Finance research lettersVol. 87
Universidade de Ribeirão Preto (BR), Universidade de São Paulo (BR), University of Twente (NL)
Openalex Percentile: Top 6%
Market Dynamics and Volatility
3.13
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When green turns exuberant: Bubble detection in clean-energy markets — Márcio Poletti Laurini, Adriano Barasal Morales, et al. · Finance research letters (2025) | TGRS Research Map | TGRS