Joao F. Gomes

Joao F. Gomes
  • Howard Butcher III Professor of Finance; Professor of Economics
  • Senior Vice Dean of Research, Centers, and Academic Initiatives

Contact Information

  • office Address:

    2329 Steinberg-Dietrich Hall
    3620 Locust Walk
    Philadelphia, PA 19104

Research Interests: macroeconomics, financial markets, quantitative macro-finance models, corporate investment and leverage

Links: CV

Overview

Education

PhD, University of Rochester, 1997; MA, University of Rochester, 1997;  BS, Nova SBE, Portugal, 1991

Background

Joao F. Gomes is the Howard Butcher III, Professor of Finance and Senior Vice Dean of Research, Centers, and Academic Initiatives at the Wharton School of the University of Pennsylvania. His expertise is on the role of financial markets to the macroeconomy.

Professor Gomes’s has published in the top academic journals in both Economics and Finance. His research covers: (i) corporate investment and financing, (ii) the effects of monetary policy on corporate decisions; and (iii) the linkages between firm leverage and investment, equity prices and the cost of capital. He has won multiple awards including the Smith Breeden Prize for Best Asset Pricing Paper published in the Journal of Finance, the Marshall Blume First Prize in Financial Research, the Award for Best Investments Paper presented at the Western Finance Association meetings, the Jacobs Levy Outstanding Paper Prize, and the Crowell Memorial Prize.

Professor Gomes joined the Wharton School in 1997. He was a Visiting Professor at the London Business School and the New University of Lisbon in Portugal. He is currently also a visiting scholar the Federal Reserve Bank of Philadelphia. Earlier in his career he was an economic advisor in the Ministry of Industry of Portugal.

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Research

Role of financial markets and institutions in the macroeconomy.

Dynamic quantitative models of the macroeconomy with financial frictions

Fundamental determinants of corporate investment and financing.

Economic fundamentals, asset pricing and credit risk.

Linkages between financial markets and monetary and fiscal policies.

  • Joao F. Gomes (Working), The Macroeconomic Implications of Corporate Income Taxes.

  • Joao F. Gomes, Marco Grotteria, Jessica Wachter (2023), Foreseen Risks, Journal of Economic Theory, 212 ().

    Abstract: Financial crises tend to follow rapid credit expansions. Causality, however, is far from obvious. We show how this pattern arises naturally when financial intermediaries optimally exploit economic rents that drive their franchise value. As this franchise value varies over the business cycle, so too do the incentives to engage in risky lending. The model leads to novel insights on the effects of recent unconventional monetary policies in developed economies. We argue that bank lending might have responded less than expected to these interventions because they enhanced franchise value, inadvertently encouraging banks to pursue safer investments in low-risk government securities.

  • Joao F. Gomes and Sergey Sarkisyan, Monetary Policy and Financial Stability.

  • Joao F. Gomes (Under Review), Marginal q.

  • Ulrich Doraszelski, Joao F. Gomes, Felix Nockher, Oligopoly dynamics with Financing Frictions.

  • Joao F. Gomes, Colin Ward, M Yasser Boualam (Under Review), Understanding the Behavior of Distressed Stocks.

    Description: We construct an asset pricing model with explicit default to develop a risk-based source of the distress anomaly. We show that distress produces sharply countercyclical betas leading to biased estimates of risk premia and alphas. This eect is amplied when earnings growth is mean-reverting, so that distressed stocks also have high ex- pected future earnings. This bias can account for between 39 and 76 percent of the distress anomaly in a calibrated economy that replicates the key characteristics of these stocks.

  • Joao F. Gomes and Lukas Schmid (2020), Equilibrium Asset Pricing with Leverage and Default, Journal of Finance.

    Abstract: We develop a general equilibrium model linking the pricing of stocks and corporate bonds to endogenous movements in corporate leverage and aggregate volatility. The model has heterogeneous firms making optimal investment and financing decisions and connects fluctuations in macroeconomic quantities and asset prices to movements in the cross-section of firms. Empirically plausible movements in leverage produce realistic asset return dynamics. Countercyclical leverage drives predictable variation in risk premia, and debt-financed growth generates a high value premium. Endogenous default produces countercyclical aggregate volatility and credit spread movements that are propagated to the real economy through their effects on investment and output.

  • Vito Gala, Joao F. Gomes, Tong Liu (2019), Investment without Q, Journal of Monetary Economics.

    Abstract: Policy functions summarize the key predictions of any dynamic investment model. They are easy to estimate and account for a large fraction of the variation in corporate investment. Estimated policy functions can also be used estimate deep parameters of a structural model of investment. Variance decomposition of empirical investment equations can be used to identify the key state variables in structural models.

    Description: Policy functions summarize the key predictions of any dynamic investment model. They are easy to estimate and account for a large fraction of the variation in corporate investment. Estimated policy functions can also be used estimate deep parameters of a structural model of investment. Variance decomposition of empirical investment equations can be used to identify the key state variables in structural models.

  • Joao F. Gomes, Marco Grotteria, Jessica Wachter (2019), Cyclical Dispersion in Expected Defaults, Review of Financial Studies, 32 (4), pp. 1275-1308.

    Abstract: A growing literature shows that credit indicators forecast aggregate real outcomes. While the literature has proposed various explanations, the economic mechanism behind these results remains an open question. In this paper, we show that a simple, frictionless, model explains empirical findings commonly attributed to credit cycles. Our key assumption is that firms have heterogeneous exposures to underlying economy-wide shocks. This leads to endogenous dispersion in credit quality that varies over time and predicts future excess returns and real outcomes.

  • Joao F. Gomes, Urban Jermann, Lukas Schmid (2016), Sticky Leverage, American Economic Review, 2016.

    Abstract: We develop a tractable general equilibrium model that captures the interplay between nominal long-term corporate debt, inflation, and real aggregates. We show that unanticipated inflation changes the real burden of debt and, more significantly, leads to a debt overhang that distorts future investment and production decisions. For these effects to be both large and very persistent it is essential that debt maturity exceeds one period. We also show that interest rate rules can help stabilize our economy.

Teaching

Monetary Economics and the Macroeconomy (Wharton Undergraduate students)

Macroeconomics and the Global Economy (Wharton MBA students)

Finance in Europe (Wharton MBA students)

Topics on Macro Finance; Intertemporal Macroeconomics (Doctoral students).

Sessions on the Global Economic Outlook; US and Eurozone Monetary Policy; Outlook for Financial Markets (Wharton Executive Education)

Current Courses (Fall 2024)

  • FNCE7400 - Central Banks, Macro, Markets

    Understanding and predicting central banking decision making and behavior is crucial for all market participants from asset managers and traders to private consumers. This course aims to provide the methods and knowledge on how central banks and governments think and implement policies to reach the goals of price and financial stability as well as support of growth and employment. The core of the course connects between the legal and actual goals that central banks follow and the related economic analysis on which these goals and policies are set. We explain the economic rationale for the policy prescriptions to reach the goals and how these policies are actually implemented by the Federal Reserve Bank (Fed) in the US, the European Central Bank (ECB), Bank of Israel (BOI) and some remarks on other countries. We use data, current events since 2007 as the basis for discussion and assignments. The second half of the class discusses the implications of these policies for equity and bond valuations. Students will be asked to forecast live policy decisions and implied market valuations.

    FNCE7400001 ( Syllabus )

    FNCE7400002 ( Syllabus )

  • FNCE9370 - Topics In Macro Finance

    This is an advanced course in quantitative theory applied to macro and finance models. It is intended for doctoral students in finance, economics and related fields. The course focuses on four broad theoretical literatures: (i) firm investment and growth; (ii) corporate, household and sovereign debt; (iii) asset pricing in general equilibrium; and (iv) equilibrium macro models with a financial sector. My approach is to develop and discuss in detail a unified framework that is suited to address most topics, usually covering a few central topics and the core papers. We then discuss the more recent literature, highlighting how authors combine and expand upon the core ideas. This part of the course usually relies on regular student presentations.

    FNCE9370001 ( Syllabus )

All Courses

  • AMCS5999 - Independent Study

    Independent Study allows students to pursue academic interests not available in regularly offered courses. Students must consult with their academic advisor to formulate a project directly related to the student’s research interests. All independent study courses are subject to the approval of the AMCS Graduate Group Chair.

  • AMCS9999 - Ind Study & Research

    Study under the direction of a faculty member.

  • FNCE2400 - Central Banks, Markets

    Understanding and predicting central banking decision making and behavior is crucial for all market participants from asset managers and traders to private consumers. This course aims to provide the methods and knowledge on how central banks and governments think and implement policies to reach the goals of price and financial stability as well as support of growth and employment. The core of the course connects between the legal and actual goals that central banks follow and the related economic analysis on which these goals and policies are set. We explain the economic rationale for the policy prescriptions to reach the goals and how these policies are actually implemented by the Federal Reserve Bank (Fed) in the US, the European Central Bank (ECB), Bank of Israel (BOI) and some remarks on other countries. We use data, current events of the 2007-2018 period as the basis for discussion and assignments. All of these are aimed understanding how and why the Fed, the ECB and the BOI set their policies. For each we shall simulate in class current decisions based on assignment related to past policies and the theory presented in class.

  • FNCE3990 - Independent Study

    Integrates the work of the various courses and familiarizes the student with the tools and techniques of research.

  • FNCE6130 - Macroecn & Global Econom

    This course is required for all students except those who, having prior training in macroeconomics, money and banking, and stabilization policy at an intermediate or advanced level, can obtain a waiver by passing an examination. The purpose of the course is to train students to think systematically about the current state of the economy and macroeconomic policy, and to be able to evaluate the economic environment within which business and financial decisions are made. The course emphasizes the use of economic theory to understand the workings of financial markets and the operation and impact of government policies. We will study the determinants of the level of national income, employment, investment, interest rates, the supply of money, inflation, exchange rates, and the formulation and operation of stabilization policies.

  • FNCE7400 - Central Banks, Macro, Markets

    Understanding and predicting central banking decision making and behavior is crucial for all market participants from asset managers and traders to private consumers. This course aims to provide the methods and knowledge on how central banks and governments think and implement policies to reach the goals of price and financial stability as well as support of growth and employment. The core of the course connects between the legal and actual goals that central banks follow and the related economic analysis on which these goals and policies are set. We explain the economic rationale for the policy prescriptions to reach the goals and how these policies are actually implemented by the Federal Reserve Bank (Fed) in the US, the European Central Bank (ECB), Bank of Israel (BOI) and some remarks on other countries. We use data, current events since 2007 as the basis for discussion and assignments. The second half of the class discusses the implications of these policies for equity and bond valuations. Students will be asked to forecast live policy decisions and implied market valuations.

  • FNCE8960 - Global Modular Course

    Open to MBA, Executive MBA and Undergraduate students, these modular courses are intended to provide unique educational experiences to students in a regional context that has particular resonance with the topic. Taught around the globe, the modular courses help us enrich the curriculum and research on our own campuses in Philadelphia and San Francisco.

  • FNCE8990 - Independent Study

    Independent Study Projects require extensive independent work and a considerable amount of writing. ISP in Finance are intended to give students the opportunity to study a particular topic in Finance in greater depth than is covered in the curriculum. The application for ISP's should outline a plan of study that requires at least as much work as a typical course in the Finance Department that meets twice a week. Applications for FNCE 8990 ISP's will not be accepted after the THIRD WEEK OF THE SEMESTER. ISP's must be supervised by a Standing Faculty member of the Finance Department.

  • FNCE9240 - Intertemporal Macro Fin

    This is a doctoral level course on macroeconomics, with special emphasis on intertemporal choice under uncertainty and topics related to finance. Topics include: optimal consumption and saving, the stochastic growth model, q-theory of investment, (incomplete) risk sharing and asset pricing. The course will cover and apply techniques, including dynamic programming, to solve dynamic optimization problems under uncertainty. Numerical solution methods are also discussed.

  • FNCE9370 - Topics in Macro Finance

    This is an advanced course in quantitative theory applied to macro and finance models. It is intended for doctoral students in finance, economics and related fields. The course focuses on four broad theoretical literatures: (i) firm investment and growth; (ii) corporate, household and sovereign debt; (iii) asset pricing in general equilibrium; and (iv) equilibrium macro models with a financial sector. My approach is to develop and discuss in detail a unified framework that is suited to address most topics, usually covering a few central topics and the core papers. We then discuss the more recent literature, highlighting how authors combine and expand upon the core ideas. This part of the course usually relies on regular student presentations.

Awards and Honors

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Latest Research

Joao F. Gomes (Working), The Macroeconomic Implications of Corporate Income Taxes.
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