Joao F. Gomes

Joao F. Gomes
  • Howard Butcher III Professor of Finance, Professor of Economics
  • Department Chair

Contact Information

  • office Address:

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

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

Links: CV



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


Joao F. Gomes is the Howard Butcher III, Professor of Finance at the Wharton School of the University of Pennsylvania. Expert on the linkages between corporate policies, financial markets and the macroeconomy.

Professor Gomes’s research was published in the top academic journals in both Economics and Finance and covers: (i) the role of financial frictions on corporate investment, (ii) the impact of monetary policy on corporate investment and financing decisions of firms; (iii) the impact of corporate leverage and investment decisions on asset prices and the cost of capital; and (iv) the fundamental sources of performance variation across asset classes. The work 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 first joined the Wharton School in 1997. Was a Visiting Professor of Finance at the London Business School between 2009 and 2011. In addition, Professor Gomes visited several international universities and research centers, including Goethe University in Germany, the University of British Columbia in Canada, the New University of Lisbon in Portugal, and the US Federal Reserve System. Earlier in his career he served as an economic advisor in the Ministry of Industry of Portugal.

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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, 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, Marco Grotteria, Jessica Wachter (Working), Foreseen Risks.

    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, 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.

  • Joao F. Gomes and Lukas Schmid (2010), Levered Returns, Journal of Finance, 2010.

    Abstract: In this paper we revisit the theoretical relation between financial leverage and stock returns in a dynamic world where both the corporate investment and financing decisions are endogenous. We find that the link between leverage and stock returns is more complex than the static textbook examples suggest and will usually depend on the investment opportunities available to the ¯rm. In the presence of financial market imperfections leverage and investment are generally correlated so that highly levered firms are also mature firms with relatively more (safe) book assets and fewer (risky) growth opportunities. We use a quantitative version of our model to generate empirical predictions concerning the relationship between leverage and returns.

  • Joao F. Gomes, Leonid Kogan, Motohiro Yogo (2009), Durability of Output and Expected Stock Returns, Journal of Political Economy, 117 (5), pp. 941-986.

    Abstract: The demand for durable goods is more cyclical than that for nondurable goods and services. Consequently, the cash flow and stock returns of durable-good producers are exposed to higher systematic risk. Using the benchmark input-output accounts of the National Income and Product Accounts, we construct portfolios of durable-good, nondurable-good, and service producers. In the cross-section, an investment strategy that is long on the durable portfolio and short on the service portfolio earns a risk premium exceeding four percent annually. In the time series, an investment strategy that is long on the durable portfolio and short on the market portfolio earns a countercyclical risk premium. We develop a general equilibrium asset-pricing model, based on a two-sector production economy, to explain these empirical findings.

  • Joao F. Gomes, Amir Yaron, Lu Zhang (2006), Asset Pricing Implications of Firms’ Financing Constraints, Review of Financial Studies, Vol. 19 (No. 4), pp. 1321-1356.

    Abstract: We use a production-based asset pricing model to investigate whether financing constraints are quantitatively important for the cross-section of returns. Specifically, we use GMM to explore the stochastic Euler equation imposed on returns by optimal investment. Our methods can identify the impact of financial frictions on the stochastic discount factor with cyclical variations in cost of external funds. We find that financing frictions provide a common factor that improves the pricing of cross-sectional returns. Moreover, the shadow cost of external funds exhibits strong procyclical variation, so that financial frictions are more important in relatively good economic conditions.


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)

Past Courses


    This is an intermediate-level course in macroeconomics and the global economy, including topics in monetary and international economics. The goal is to provide a unified framework for understanding macroeconomic events and policy, which govern the global economic environment of business. The course analyzes the determinants and behavior of employment, production, demand and profits; inflation, interest rates, asset prices, and wages; exchange rates and international flows of goods and assets; including the interaction of the real economy with monetary policy and the financial system. The analysis is applied to current events, both in the US and abroad. Students cannot receive credit for taking both FNCE 101 and ECON 102. Wharton students are required to take FNCE 101.


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


    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.


    This course aims to provide the future global manager and financial analyst with the knowledge on policies set by central banks, regulators and governments 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 formal and actual goals that central banks follow and the related economic analysis on which the goals and the policies are set. We will explain the economic rationale for the policy prescriptions to reach the goals and how these are implemented using institutional framework in the US, the European Central Bank (ECB), Israel and remarks on other countries. We use data, current events and events of the 2007-2018 financial crisis as a basis for discussion and assignments. All these are aimed at understanding how and why the Federal Reserve of the US (the Fed), The Bank of Israel (BOI) and the European Central Bank (ECB) set their policies and how that is related to academic research on these issues.


    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.


    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 899 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.


    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.


    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

In the News

Knowledge @ Wharton


Latest Research

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

In the News

Could Quantitative Finance Help Avert Future Market Crashes?

Investors can use smart models to brave market slumps, but they have short memories and often repeat mistakes, says Wharton’s Joao Gomes.

Knowledge @ Wharton - 2020/07/1
All News

Awards and Honors

Marshall Blume Prize for Excellence in Financial Research 2018
All Awards