What is it about?
Bubbles are usually chaotic, yet could be predictable, provided their formation matches the log periodic power law (LPPL) with unique stylized facts. We investigated Green Bubble behaviour in the stock prices of a selection of stocks during the COVID-19 pandemic, namely those with the highest market capitalization from a basket of North American and European green energy or clean tech companies and the S&P Global Clean Energy Index. Moreover, the biggest Exchange Traded Fund (TAN) by market capitalization was also considered. The examined period is from 31 December 2019 to 11 October 2021 during which we detected 35 Green Bubbles. All of these fol-lowed the LPPL signature while calibrated through the 2013 reformulated LPPL model. In addition, the average drawdown emerged as four times that of the regular S&P-500 stock index (108% vs. 27%) under stressed conditions, such as the COVID-19 pandemic (stylized fact). Finally, the af-termath of Green Bubbles, unlike regular bubbles, is not destructive as these bubbles increase economic activity and infrastructure spending and are hence beneficial for holistic growth (de-scribed as Social Bubble Hypothesis). We document that there are benefits in adapting greener and more sustainable business models in energy production. Green and sustainable finance offers benefits and opportunities for stock exchanges, especially for energy stocks. As a result, many businesses are focusing on sustainability and adopting an eco-friendly business model, which helps the environment, helps sustainability and attracts investors.
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Why is it important?
This study contributes to the existing literature as it is the first attempt to search for a common thread across the financial bubbles of the stock prices of a selection of stocks from a basket of Green energy or clean tech companies (from North America and Europe) and the S&P Global Clean Energy Index during COVID-19 by using the Filimonov and Sornette (2013) [28] modified LPPL. In addition, we differentiated from previous studies (Geuder et al., 2019; Ghosh et al., 2021; Ghosh, et al., 2020; Wheatley et al., 2019) by testing the robustness of the LPPL following the reformulated version of the LPPL calibra-tions proposed by Filimonov and Sornette (2013)
Perspectives
Our analysis led us to the following conclusions: First of all, the presence of Green Bubbles in green energy companies during the COVID-19 is confirmed. Secondly, the av-erage drawdown emerged as four times that of regular S&P-500 stock index under stressed conditions, such as COVID-19. Thirdly, it is understood that these bubbles will not typically destroy public wealth in the long run; on the contrary they can increase the economic activity to a great extent, resulting in the sudden increase of the growth of Green energy companies. Finally, the stylized facts obtained from empirical analysis would as-sist in predicting Green Bubbles in the future. Therefore, this study would most certainly assist policymakers, the industry and the academia alike.
Dr Spyros Papathanasiou
National and Kapodistrian University of Athens
Read the Original
This page is a summary of: Deconstruction of the Green Bubble during COVID-19 International Evidence, Sustainability, March 2022, MDPI AG,
DOI: 10.3390/su14063466.
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