Joao F. Gomes

Joao F. Gomes
  • Howard Butcher III Professor of Finance

Contact Information

  • office Address:

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

Research Interests: macroeconomics, financial markets, quantitative corporate finance

Overview

Education

PhD, University of Rochester, 1997; MA, University of Rochester, 1996; BS, Nova SBE, Portugal, 1991

Background

Joao F. Gomes is the Howard Butcher III, Professor of Finance at the Wharton School of the University of Pennsylvania. He is an expert in the areas of macroeconomics and financial markets and has taught several courses on these subjects to undergraduate, MBA and doctoral students.

Professor Gomes first joined the Wharton School in 1997 where he was previously the James Campbell Jr. Associate Professor of Finance. Most recently he was a Visiting Professor of Finance at the London Business School. 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 economic advisor to the Ministry of Industry of Portugal.

His recent research covers the impact of financial markets and various macroeconomic policies on corporate investment and financing decisions of firms. He has also examined the role of financial leverage in determining the cost of capital, the causes of performance variation across asset classes, and the quantitative importance of financial market imperfections on corporate decisions and economic cycles.

Professor Gomes’ research has been presented and discussed at major academic conferences and seminar series around the world and is published in the top academic journals in both economics and finance. He has won several awards including the Smith Breeden Prize for Best Asset Pricing Paper published in the Journal of Finance, with a study on the links between leverage and returns, and was nominated for the Brattle Prize for Best Corporate Finance Paper in the same journal, with earlier work on the performance of conglomerates.

Professor Gomes earned his bachelors degree from the New University of Lisbon in 1991. He earned a Masters, and later a Doctorate, in Economics from the University of Rochester.

 

 

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Research

Asset pricing with default risk;

Macroeconomic effects of debt overhang and monetary policy;

Impact of corporate tax reform;

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

  • Joao F. Gomes, Marco Grotteria, Jessica Wachter (Working), Foreseen Risks.

  • Joao F. Gomes, Marco Grotteria, Jessica Wachter (Working), Cyclical Dispersion in Expected Defaults.

  • 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.

  • Vito Gala and Joao F. Gomes (Working), Estimating Shadow Values.

    Abstract: Current methods to estimate fully specified structural models are both computationally intensive and vulnerable to specification error. This has significantly hampered their widespread use in empirical work. We show how these issues can be circumvented when the value function is observable, as is typically the case in many economic models of firm behavior. Our methodology directly estimates the shadow values of any measurable input through a simple projection approach which, unlike existing methodologies, does not require a detailed specification of the payoff function, the laws of motion for state variables or the stochastic discount factor. Direct estimation of shadow values allows us to uncover the shape of the optimal policy functions and ultimately deep structural parameters of the model. We show that this projection approach dominates existing methodologies, including the VAR-based approach, the Euler equation approach and indirect inference, since it allows to achieve more, more easily, and with less assumptions. Importantly, and unlike existing methodologies, the projection approach uncovers the true shadow values even in the presence of model misspecification.

  • Vito Gala and Joao F. Gomes (Under Review), Investment without Q.

    Abstract: We estimate investment policy functions under general assumptions about technology and markets. Policy functions are easy to estimate and summarize the key predictions of any dynamic investment model. Because our method does not rely on Tobin's Q, it does not require information about market values and can be readily applied to study private firms. In addition, unlike Tobin's Q,  we show that investment policy functions account for a large fraction of the variation in corporate investment. As such they are much better suited to evaluate and estimate dynamic investment models. Using this superior characterization of firm investment behavior we then use indirect inference methods to estimate deep parameters of a structural model of investment featuring decreasing returns to scale and generalized adjustment cost functions.

  • 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.

  • Vito Gala, Joao F. Gomes, Marco Grotteria (Working), The Marginal Value of Cash.

  • Vito Gala, Joao F. Gomes, Hongxun Ruan (Working), Why Has Corporate Investment Been So Weak?.

    Abstract: We use a dynamic stochastic model of firm investment to investigate quantitatively the causes behind the collapse of investment during the Great Recession and its ongoing slump. Our analysis focuses on three of the most commonly proposed explanations: (i) a secular decline in productivity growth; (ii) a tightening of financial constraints; and (iii) an increase in policy uncertainty. We find that all three factors are important to account for the sharp decline in investment during the Great Recession. By contrast, below trend productivity alone provides the best account for the slow investment recovery.

  • Joao F. Gomes (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.

Teaching

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

  • FNCE615 - Macroeconomics (half Cu)

    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

    FNCE615001 ( Syllabus )

    FNCE615003 ( Syllabus )

    FNCE615005 ( Syllabus )

  • FNCE896 - Finance In Europe

    This is a short seminar on finance in Europe. Its objective is to bring students, academics and several industry experts together to study financial markets, practice, and institutions in Europe. The course will primarily examine the following areas: 1.Current challenges in European markets and Euro Zone 2.Political economy of European Union 3.Alternative Investments 4.Investment Banking & Cross Border Mergers and Acquisitions. We will cover the above topics by studying the practice and transactions in Europe with a comparison to USA and rest of the world. This is a half unit course and it is designed for Wharton MBAs. Exceptionally motivated undergraduate students are also welcome to take the course.

    FNCE896401

  • FNCE924 - 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.

    FNCE924001 ( Syllabus )

  • WH 215 - Global Modular Course: Finance In Europe, London

    WH 215401

Past Courses

  • FNCE101 - MONETARY ECON & GLOB ECO

    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: https:fnce.wharton.upenn.edu/programs-course-applications, 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.

  • FNCE399 - INDEPENDENT STUDY

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

  • FNCE613 - 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 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.

  • FNCE615 - MACROECONOMICS (HALF CU)

    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

  • FNCE896 - FINANCE IN EUROPE

    This is a short seminar on finance in Europe. Its objective is to bring students, academics and several industry experts together to study financial markets, practice, and institutions in Europe. The course will primarily examine the following areas: 1.Current challenges in European markets and Euro Zone 2.Political economy of European Union 3.Alternative Investments 4.Investment Banking & Cross Border Mergers and Acquisitions. We will cover the above topics by studying the practice and transactions in Europe with a comparison to USA and rest of the world. This is a half unit course and it is designed for Wharton MBAs. Exceptionally motivated undergraduate students are also welcome to take the course.

  • FNCE899 - 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. 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 https://fnce.wharton.upenn.edu under the Course ISP section

  • FNCE924 - 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.

  • FNCE937 - APPLIED QUANTITATIVE MET

    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

Activity

Latest Research

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

In the News

Does Trickle-down Economics Add Up – or Is It a Drop in the Bucket?

The truth about trickle-down economics is that it’s a shallow way of trying to get at a very complicated question: How do tax cuts really play out in the economy?

Knowledge @ Wharton - 2017/12/12
All News

Awards and Honors

Western Finance Association Award for Best Paper in Investment Management 2017
All Awards