The lithium bubble in the aftermath of COVID and the energy transition hype

In this paper we study the nature of the recent lithium carbonate bubble in the context of COVID-19 and the energy transition boom. A bubble refers to a situation where the price of an asset significantly exceeds its intrinsic value. Our evidence suggests that lithium experienced a statistically significant explosive episode, which was largely internally driven (e.g. idiosyncratic). Explosiveness tests suggest strong explosive behavior in lithium during 2020–23. This finding is reinforced by the spillover-connectivity analysis, which reveals lithium’s extreme isolation and decoupling from the broader commodity system. Finally, GARCH modeling indicates no meaningful interaction with copper, the other major transition metal, beyond the initial stages of the energy transition boom. Moreover, while shocks exhibit limited immediate effects, the estimated dynamics are highly persistent, suggesting that periods of elevated uncertainty dissipate only gradually and therefore pose important risk-management challenges for producers and investors alike. Overall, our results support the view that the lithium price episode was predominantly driven by market-specific forces rather than broader commodity-market integration, consistent with the interpretation of a bubble.