Exploringbubble tendenciesin the lithium-ion battery market

Abstract

We applied structural time series econometrics and correlation analysis to key macroeconomic and sector-specific indicators to detect potential bubbles in the lithium-ion battery market in the United States and Europe. Anchored in economic theories such as the financial instability hypothesis, hegemonic stability theory, real business cycles, the AD-AS framework, and financial bubble theory, the analysis seeks to provide clarity in a s ector marked by an emerging stage. In the absence of a publicly traded Lithium-Ion Battery (LIB) index, the thesis introduces the Battery Company Index (BCI) created by the writers of this thesis. The BCI is an aggregate of LIB firms publicly listed on stock exchanges in Europe, the US, and globally. This index serves as a new instrument to indicate the pulse of the market and to benchmark financial health against regional monetary fluxes, credit movement, production outputs, and asset price variances. Research conducted between 2016 and 2023 reveals potential bubble patterns, with the years 2020 and 2021 standing out as particularly noteworthy, especially for the US. It posits that the unique market conditions, amplified by subsidies and monetary stimulus, may have fostered a situation for speculative behaviour. The analysis of the BCI and corresponding macroeconomic indicators captures these dynamics, suggesting financial instability within the sectors in this period. In conclusion, we find speculative behaviours within the stock market segments, confirming a broad complex economic bubble. The interplay of various factors like the emergent nature of the LIB market, creates a difficult market environment, making definite statements on the presence of bubbles challenging, especially for estimating fundamental value. However, we look at the findings of this thesis as a preliminary contribution to academic discussions regarding potential financial bubbles within the LIB sector.