Abstract

The "green bubble" phenomenon has attracted attention in renewable energy investment, raising concerns about its economic and environmental implications. This paper examines the phenomenon by applying mixed causal and noncausal models to three key green stock indexes. These models allow us to analyze bubble dynamics while treating the variable under investigation as stationary, departing from traditional definitions that characterize bubbles as nonstationary and temporarily explosive processes. Our findings reveal a noncausal feature that explains the index's locally explosive pattern. Finally, we conduct a multivariate analysis of the stocks driving the aggregate bubble in the Renixx indicator to construct portfolios that mitigate the bubble risk observed in the official index.