Soaring prices in European alternative energy stocks and their subsequent tumble have attracted attention from both investors and academics. This paper by Martin T. Bohl, Philipp Kaufmann and Pierre L. Siklos extends recent research to an international setting and analyzes whether the explosive price behaviour of the mid-2000s was driven by rising crude oil prices and an overall bullish market sentiment. Inflation-adjusted US alternative energy stock prices do not exhibit signs of explosiveness. The authors find strong evidence of explosive price behaviour for European and global sector indices, even after controlling for a set of explanatory variables, 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. The authors observe temporary episodes of explosiveness between 2005 and 2007 followed by rapid collapses, indicating the presence of some irrational exuberance among investors.

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CIGI Papers present in-depth analysis and discussion on governance-related subjects. They include policy papers that present CIGI experts' positions or contributions to policy debates, and background papers that contain research findings, insights and data that contribute to the development of policy positions.
  • Pierre Siklos is a CIGI senior fellow. His research interests include applied time series analysis and monetary policy, with a focus on inflation and financial markets.

  • Martin T. Bohl is professor of economics, Centre for Quantitative Economics, Westphalian Wilhelminian University of Münster. From 1999 to 2006, he was a professor of finance and capital markets at the European University Viadrina Frankfurt (Oder). His research focuses on monetary theory and policy as well as financial market research.

  • Philipp Kaufmann is a research associate, doctoral candidate and the Chair of Monetary Economics at the Westfälische Wilhelms-University Münster.

    Prior to this, he was a visiting researcher at Wilfrid Laurier University in Waterloo, Canada. He completed a double degree program at the Ecole de Management Strasbourg at the University of Strasbourge, majoring in finance, and received a diploma in business administration at the Friedrich-Alexander-University ErlangenNuremberg. His research focuses include price and earnings momentum, mutual fund performance, investor sentiment and alternative energy stocks.