Photo Fredj Jawadi

FREDJ JAWADI

PROFESSEUR(E)

Research interests

  • arrow_right Finance empirique
  • arrow_right Econométrie appliquée
  • arrow_right Marchés des commodités

Research group

    Macroéconomie internationale, finance, matières premières et économétrie financière

HAL open science

Contact

2025-29

Fundamental Valuation of Equities under Allocative Rationality

Fredj Jawadi, Georges Prat, Remzi Uctum

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Abstract
We estimate the fundamental values of individual stocks under the allocative rationality hypothesis, according to which portfolio diversification implies a valuation process in which only non-diversifiable risk is rewarded to investors. This new modeling approach, which departs from the rational expectations hypothesis, is applied to 33 companies selected from the 11 economic sectors of the S&P500 index. For each company, the dividend growth model (DGM) is combined with arbitrage pricing theory (APT), linking the equity risk premium to common factors through specific sensitivities. The estimation of our multivariate DGM-APT model over the period November 1983 to September 2024 leads to the identification of five common factors: the market factor, the default spread of interest rates, the oil price, the inflation rate, and the real GDP growth rate. To this end, we employ a methodology that is robust to parameter instability - marked by a common structural break in August 1995 - and which addresses residual autocorrelation through the use of bootstrap techniques. Our results differ from previous studies, which conclude that the fundamental values of stock indices are smoother than observed indices, a phenomenon known as the volatility puzzle. This puzzle disappears within our firm-level DGM-APT framework, in which fundamental values capture stock price trends and account for a large share of short-term fluctuations. However, consistent with studies based on indices, we highlight a mean-reversion process of stock prices toward their fundamentals.
Mot(s) clé(s)
equity prices, fundamental values, volatility puzzle, dividend discount model, arbitrage pricing theory
2018-26

The Nonlinear Relationship between Economic growth and Financial Development

Balázs Egert, Fredj Jawadi

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Abstract
This paper studies the relationship between financial development and economic growth in a large sample of developing, emerging and advanced economies and on a separate, longer sample including only OECD countries over the recent period. Estimation results based on nonlinear threshold regression models do not confirm the too-much-finance-is-bad hypothesis, especially if the cross-country variation in the data is accounted for. We cannot indeed identify a tipping point beyond which financial development has a negative relation to economic development. What we see at best is that the positive effect of finance declines at higher levels of finance. Our results also show that banking and market finance are complementary. The positive effect of stock market deepening is larger when banking finance is more pronounced (and the other way around). But the thresholds above which complementarity kicks in are rather low. Finally, our results indicate that finance has a stronger positive effect in more developed countries. At the same time, the positive effect of finance is weaker in countries with lower trade openness. This may suggest that more open economies have access to alternative sources of external financing.
Mot(s) clé(s)
financial development, economic growth, nonlinearity, threshold effects.
2017-11

On Oil-US Exchange Rate Volatility Relationships: an Intradaily Analysis

Hachmi BEN AMEUR, Abdoulkarim Idi Cheffou, Fredj Jawadi, Wael Louhichi

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Abstract
The paper investigates the dynamics of oil price volatility by examining interactions between the oil market and the US USD/EUR exchange rate. To this end, we use recent intradaily data to measure realised volatility and to investigate the instantaneous intradaily linkages between different types and proxies of oil price and US$/euro volatilities. We specify the drivers of oil price volatility through a focus on extreme US$ exchange rate movements (intradaily jumps). Accordingly, we find a negative relationship between the US USD/EUR and oil returns, indicating that a US $ appreciation decreases oil price. Second, we note the presence of a volatility spillover from the US exchange market to the oil market. Interestingly, this spillover effect seems to occur through intradaily jumps in both markets.
Mot(s) clé(s)
Oil price volatility, realised volatility, intradaily jumps, exchange rate, intradaily data, GARCH model
2015-16

Equity Prices and Fundamentals: a DDM-APT Mixed Approach

Fredj Jawadi, Georges Prat

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Abstract
This paper focuses on the linkages between equity prices and fundamentals for 27 individual shares from the French stock price index (CAC40). To assess fundamental value, the traditional Dividend Discount Model (DDM) equities’ valuation principle is coupled with the Portfolio Choice Theory based on the Arbitrage Pricing Theory (APT). This yields a general equity valuation relationship for which the APT determines the long-term risk premium included in the DDM. Interestingly, restrictions are less significant than in the usual approaches since the number of risk premium factors is not limited a priori by the theory. Accordingly, our empirical results point to two major findings. On the one hand, while results in the literature based on the DDM showed that fundamental value dynamics are very smooth with respect to stock price indices, our DDM-APT model reproduces both trends and major share price fluctuations. On the other hand, a simple linear Error Correction Model (ECM) highlighted a mean-reversion process of equity prices towards their fundamental values.
Mot(s) clé(s)
Stock valuation; equity risk premium; stock price adjustment.
2009-21

Nonlinear Stock Price Adjustment in the G7 Countries

Fredj Jawadi, Georges Prat

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Abstract
This paper seeks to address the stock price adjustment toward fundamentals. Using the class of Switching Transition Error Correction Models (STECMs), we show that two regimes describe the dynamics of stock price deviations from fundamentals in the G7 countries over the period 1969-2005. Deviations appear to follow a quasi random walk in the central regime when prices are near fundamentals (i.e. transaction costs being greater than expected gains, the mean reversion mechanism is inactive), while they approach a white noise in the outer regimes (i.e. transaction costs being lower than expected gains, the mean reversion works). As expected when transaction costs are heterogeneous, the STECM shows that stock price adjustments are smooth, implying that the convergence speed is time-varying according to the size of the deviation. Finally, using appropriate indicators, both the magnitudes of under- and overvaluation of stock price and the speed of the mean reversion are exhibited per date in the G7 countries, showing that the dynamics of stock price adjustment is highly dependent on the date and on the country under consideration.
Mot(s) clé(s)
Price, heterogeneous transaction costs, STECMs
2006-20

Coûts de transaction et dynamique non-linéaire des prix des actifs financiers : une note théorique

Slim Chaouachi, Fredj Jawadi

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Abstract
The debate of actuality concerns room occupied by the nonlinear models within modelling of the financial sets. To justify the nonlinearity inherent to these sets dynamics, we explore effects of the microstructure of the financial market and teachings of the behaviour finance theory (i.e. transaction costs, asymmetry of information, heterogeneity of investors, mimetic). We show that the presence of transaction costs dissuades the arbitration, limits transactions, deprives prices to fit linearly and continually and induces asymmetric deviations course.
Mot(s) clé(s)
Coûts de transaction, mésalignements de prix, Ajustement non-linéaire, asymétrie et persistance.
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