The Wharton School
Howard Butcher III Professor of Finance


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


Professor Gomes has been at the Wharton School since 1997. His expertise lies at the intersection of macroeconomics and financial markets where he has taught several courses to undergraduate, MBA and doctoral students both at Wharton and around the world.

Professor Gomes' research covers the determinants of the corporate investment and financing decisions of firms, their connections to movements in financial markets, and with the macroeconomic environment. His most influential work has been on 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 to corporate decisions and business cycles.

Professor Gomes’ research 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's previous appointments include a professorship at the London Business School as well as several visiting appoitments at other universities and research centers, including the University of British Columbia in Canada, Nova SBE in Portugal, and the U.S. Federal Reserve. Early in his career he has also served as an adhoc economic advisor to the Ministry of Industry of Portugal.

Macroeconomic effects of debt overhang; monetary policy; corporate investment;

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

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, Marco Grotteria, Jessica Wachter (Working), Cyclical Dispersion in Expected Defaults.

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 signicantly 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 VARbased 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 longterm 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 (Under Review), 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 crosssection of firms. Empirically plausible movements in leverage produce realistic asset return dynamics. Countercyclical leverage drives predictable variation in risk premia, and debtfinanced 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.

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

Past Courses


FNCE 101 is an intermediatelevel 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) Supplyside shocks and macrodynamics, (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 nonfinance majors. It is a halfsemester 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


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, qtheory 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.

  • Smith Breeden First Prize for Best Asset Pricing Paper Published in the Journal of Finance, 2010
  • Crowell First Prize, Best Quantitative Work, PanAgora Asset Management, 2007
  • Brattle Prize Nomination, Best Corporate Finance Paper Published in the Journal of Finance, 2004
  • Kaplan Memorial Prize for excellent scholarship – University of Rochester, 1994
  • Banco of Portugal Award, First Prize for Highest Undergraduate Average In Economics, 1991

Knowledge @ Wharton

  • Will the Fed and U.S. Monetary Policy Ever Get Back to ‘Normal’?, Knowledge @ Wharton 05/30/2017
  • How the Outcome of the French Election Will Impact Europe, Knowledge @ Wharton 05/08/2017
  • The French Election: Why the E.U. Is Breathing a Sigh of Relief – for Now, Knowledge @ Wharton 04/24/2017
  • What a NATO Exit Would Mean for the U.S. and Europe, Knowledge @ Wharton 01/25/2017
  • Is Europe Headed for a Political and Financial Crisis in 2017?, Knowledge @ Wharton 01/19/2017
  • How the U.S. Election Will Affect Capital Markets, Knowledge @ Wharton 11/03/2016
  • Can Brexit Be Achieved with Minimal Damage?, Knowledge @ Wharton 10/07/2016
  • Brexit Uncertainty: What Leaving Would Mean, Knowledge @ Wharton 06/22/2016
  • The Ultimate Exit Strategy: Why a Brexit Could Sink the EU, Knowledge @ Wharton 03/23/2016
  • A Troubled 2015 Gives Way to a Tense New Year in Europe, Knowledge @ Wharton 01/07/2016
  • What’s Behind the Fed’s Interest Rate Decision?, Knowledge @ Wharton 09/21/2015
  • Does Austerity Work? Or Does It Make Things Worse?, Knowledge @ Wharton 08/19/2015
  • Is the U.S. Stock Market Overvalued?, Knowledge @ Wharton 05/26/2015
  • What a Robust Dollar Means for U.S. Business — and the Global Economy, Knowledge @ Wharton 04/15/2015
  • How Germany Can Make or Break the Euro, Knowledge @ Wharton 03/17/2015
  • ECB Stimulus: A Bold Move or Baby Step?, Knowledge @ Wharton 06/24/2014
  • In the First 100 Days, Janet Yellen Puts Her Own Imprint on the Fed, Knowledge @ Wharton 05/07/2014
  • Janet Yellen: What’s Ahead for the Fed?, Knowledge @ Wharton 10/23/2013
  • Is It Time for the Fed to Wind Down the Economic Stimulus?, Knowledge @ Wharton 07/31/2013
  • Who Cares About the Deficit, and Why?, Knowledge @ Wharton 02/25/2004
  • The Economic Outlook for 2003: A Promising Start, Knowledge @ Wharton 01/15/2003
  • Brazil: A Heady Mix of World Cup Euphoria, Election Anxiety and Economic Uncertainty, Knowledge @ Wharton 07/17/2002

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