Rasool, Ridda
(2020)
Clean Technology Bubble 2.0 – A Repeat of History from 2007?
[Dissertation (University of Nottingham only)]
Abstract
In modern history, financial bubbles often entail disastrous consequences. Between 2004 and 2008, clean technologies suffered a bubble that burst at the start of the financial crisis. Stock prices plummeted and remained stable at preposterously low levels for over a decade. In recent years, however, the industry has witnessed yet another spectacular upswing, exceeding record highs observed during the previous bubble. This paper contends that a new clean technology bubble has emerged, sharing similar characteristics with the previous bubble but driven by novel components. To demonstrate this, the Renewable Energy Industrial Index (RENIXX) is evaluated using the Log Periodic Power Law Singularity (LPPLS) model. Analysis in this paper is consistent with a recent publication by Giorgis et al. (2021) on the 2007 clean-technology bubble (using the same index and procedure) ; this facilitate comparative research between bubbles and studies and validates this paper’s methodology. Furthermore, stricter filtering conditions are imposed and the paper employs a DS LPPLS Confidence Indicator to identify positive and negative bubbles over time, providing a more in-depth analysis compared to existing bubble detection literature (including a more thorough LPPLS conclusion than that provided by Giorgis et al., 2021). Having demonstrated empirical credibility, this paper discovers convincing evidence of a bubble between April 2018 and November 2020, with a positive fit between the LPPLS and RENIXX. For this time frame, the confidence indicator effectively detected two positive bubble periods and one negative bubble period, corresponding to well-known recent stock market occurrences. However, the model fails to detect bubble signals at the time of this paper's submission (August 2021). This does not indicate that the current bubble has burst. Qualitative analysis, employing contemporary academic research, supports findings and reveal extremely high levels of herding, volatility, and crowding within the index, possibly due to: an increase in "ESG investing", irrational excessive enthusiasm for electric vehicles and batteries, and a surge in retail investor activity via social media and online forums. In concluding remarks, parallels are drawn between both bubbles to substantiate this claim.
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