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, quantitative finance

Links: CV



PhD, 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. He is an expert on the links between corporate policies, financial markets developments and the macroeconomy.

Professor Gomes’s research includes publications in the top academic journals in both Economics and Finance covering: (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. His work 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 first joined the Wharton School in 1997. He was a Visiting Professor of Finance at the London Business School between 2009 and 2011. In addition, Professor Gomes has visited several other universities and research centers, including the University of British Columbia in Canada, the New University of Lisbon in Portugal, and the US Federal Reserve System. He has also served as an ad-hoc economic advisor to the Ministry of Industry of Portugal.



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Asset pricing with default risk;

Effects of financial sector rents on risk taking

Impact of corporate tax reform;

  • Joao F. Gomes (Work In Progress), The Macroeconomic Implications of Corporate Income Taxes.

  • Vito Gala, Joao F. Gomes, Tong Liu (Forthcoming), Investment without Q.

    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, Colin Ward, M Yasser Boualam (Draft), Understanding the Behavior of Distressed Stocks.

    Description: This paper argues that the seemingly lower returns on distressed stocks are the result of estimation bias and proposes a simple theoretical correction that can be applied in practice. The bias emerges because highly distressed stocks possess equity betas that display countercyclical nonlinear movements that are not well captured by simple linear factor pricing models. Empirically, we find that these biases can be quite large for abnormal excess returns and that after implementing our proposed correction we see little evidence of underperformance for portfolios of distressed stocks in the data.

  • 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 (Forthcoming), Equilibrium Asset Pricing with Leverage and Default.

    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.

  • 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.


I teach several courses on macroeconomics and financial markets to Masters and Doctoral level students. I also teach in several of Wharton’s Executive Education programs

Current Courses

  • FNCE896 - 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.


Past Courses


    FNCE 101 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. HONORS FNCE 101 is only offered in the Fall semester. Registration for this class is through an application process. Please go to:, This course presents the analysis of macroeconomic theory with a current events perspective. The material in the class concentrates on lecture notes, which are the primary learning source, and readings from a course packet of articles drawn from journals, magazines, newspapers, and other economic publications. The material covered will include: (1) Economic Statistics, GDP, Price Indices,Productivity and the nature of the business cycle, (2) The government budget and Social Security, (3) Monetary policy, The Fed and other Central Banks,(4) Interest rates - indexed bonds and ther term structure (5) Aggregate Demand and the determination of income and interest rate, (6) Money and Inflation - the Velocity Approach, (7) Reaction of Financial Markets to economic data,(8) Inflation, inflationary expectations and the Phillips Curve,(9) Supply-side shocks and macro-dynamics, (10) International Balance of Payments, the current account and capital flows, (11) Determination of Exchange Rates, exchange rate systems, purchasing power and interest rate parity.


    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 FNCE 613 is to train the student 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. Specifically, the course studies 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.


    FNCE 615 Introduction To Macroeconomics and The Global Economic Environment (Half Cu) is intended for non-finance majors. It is a half-semester course in macroeconomics, with an emphasis on current events and policy applications. The goal of this course is to provide the foundation needed to recognize and understand broad economic and financial movements in the global economy. Key topics include national income accounting, production and economic growth, employment, business cycles, monetary and fiscal policy, and international finance. By the end of this course, students will be able to evaluate and discuss the global economic environment in which business and financial decisions are made. PLEASE NOTE: This course will not count towards a Finance Major


    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. At a minimum, we need a description of the methodology you intend to employ, a bibliography and description of the data that you will use as well as a list of interim deliverables and dates to ensure that you complete the project within the semester. Applications for FNCE 899 ISP's will not be accepted after the THIRD WEEK OF THE SEMESTER. You must submit your Finance ISP request using the Finance Department's ISP form located at under the Course ISP section


    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 (Work In Progress), The Macroeconomic Implications of Corporate Income Taxes.
All Research

In the News

Is the World Economy Headed for a Fall?

It’s not just the latest IMF forecast causing concern. Many straws in the wind point to tougher times ahead, experts say.

Knowledge @ Wharton - 2019/04/18
All News

Awards and Honors

Marshall Blume Prize for Excellence in Financial Research 2018
All Awards