From Hero to Zero: Evidence of Performance Reversal and Speculative Bubbles in German Renewable Energy Stocks

Abstract

Stocks of German renewable energy companies have commonly been regarded as lucrative investment opportunities. Their innovative line of business initially seemed to promise considerable future earnings. As shown by two powerful bubble tests, the positive sentiment for renewable energy stocks even led to explosive price behavior in the mid-2000s. However, intense sector competition and the economic downturn following the global financial crisis erased profit margins to a large extent. As a result, the former fad stocks have recently turned into losers, loading negatively on price momentum and delivering significantly negative Carhart (1997) four-factor alphas. The radical shift in Germany's energy policy following the Fukushima nuclear disaster in Japan could thus only temporarily halt the continuing decline in alternative energy stock prices.

Financing energy transformation: The role of renewable energy equity indices

“…More recently, however, this is no longer the case. Bohl, Kaufmann, and Stephan (2013) show that German renewable energy stocks are highly volatile. Cummins, Garry, and Kearney (2014) perform a price discovery analysis to discover Granger causation relationships for "green" equity indices and a set of commodity and broad equity markets.…”

“…Will the financial market invest in the transformation to renewable energy on the basis of their own value system? As such, we try to complement the scarce literature that is developing in this area, such as Bohl, Kaufmann, and Stephan (2013) who study the volatility of German renewable energy stocks, and Ortas and Moneva (2013) who compare clean tech indices with the market. Our investigation is important to understand whether renewable energy investments may substitute for conventional energy investments by institutional investors in the future and whether this transformation could be purely market driven.…”

European Green Mutual Fund Performance: A Comparative Analysis with their Conventional and Black Peers

“…from the turn of the millennium until the global financial crisis (see Henriques and Sadorsky 2008;Kumar et al 2012;Bohl et al 2015;Sadorsky 2012;Inchauspe et al 2015;Bohl et al 2013;Managi and Okimoto 2013). The worsening state of the global economy thereafter lands the industry in substantial difficulties.…”

Identifying Price Bubble Periods in the Energy Sector

“…Bohl et al (2013) Gronwald (2016) uses the SADF to find evidence of explosive behavior in the oil price series. Caspi et al (2015) implements the more recent Generalized SADF (GSADF) proposed by Phillips, Shi and Yu (2015, PSY henceforth) to find explosivity in oil prices.…”