The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Optimal Diversification: Reconciling Theory and Evidence
Published: 3/25/2004, Volume: 59, Issue: 2 | DOI: 10.1111/j.1540-6261.2004.00641.x | Cited by: 160
Joao Gomes, Dmitry Livdan
In this paper we show that the main empirical findings about firm diversification and performance are consistent with the maximization of shareholder value. In our model, diversification allows a firm to explore better productive opportunities while taking advantage of synergies. By explicitly linking the diversification strategies of the firm to differences in size and productivity, our model provides a natural laboratory to investigate several aspects of the relationship between diversification and performance. Specifically, we show that our model can rationalize the evidence on the diversification discount (Lang and Stulz (1994)) and the documented relation between diversification and productivity (Schoar (2002)).
Levered Returns
Published: 3/19/2010, Volume: 65, Issue: 2 | DOI: 10.1111/j.1540-6261.2009.01541.x | Cited by: 239
JOAO F. GOMES, LUKAS SCHMID
This paper revisits the theoretical relation between financial leverage and stock returns in a dynamic world where both corporate investment and financing decisions are endogenous. We find that the link between leverage and stock returns is more complex than static textbook examples suggest, and depends on the investment opportunities available to the firm. 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. A quantitative version of our model matches several stylized facts about leverage and returns.
Marginal Q
Published: 8/19/2026, Volume: , Issue: | DOI: 10.1111/jofi.70074 | Cited by: 0
VITO D. GALA, JOAO F. GOMES, TONG LIU
We propose a new method to estimate the marginal value of capital under minimal assumptions. By combining asset prices with fundamentals, our method provides a quasi‐model‐free marginal q together with a simple correction for measurement error in (average) Tobin's Q using linear regressions. Marginal q yields plausible and robust estimates of adjustment costs and investment sensitivities to fundamentals. The widening gap between marginal q and Tobin's Q is driven primarily by market power and intangible capital. Our novel findings strongly support the neoclassical theory of investment and challenge the widespread use of Tobin's Q as proxy for investment opportunities.
Going Public without Governance: Managerial Reputation Effects
Published: 4/2000, Volume: 55, Issue: 2 | DOI: 10.1111/0022-1082.00221 | Cited by: 365
Armando Gomes
This paper addresses the agency problem between controlling shareholders and minority shareholders. This problem is common among public firms in many countries where the legal system does not effectively protect minority shareholders against oppression by controlling shareholders. We show that even without any explicit corporate governance mechanisms protecting minority shareholders, controlling shareholders can implicitly commit not to expropriate them. Stock prices of such companies are significantly higher and firms are more likely go public because of this reputation effect. Moreover, insiders divest shares gradually over time, at a rate that is negatively related to the degree of moral hazard.
Optimal Life‐Cycle Asset Allocation: Understanding the Empirical Evidence
Published: 3/2/2005, Volume: 60, Issue: 2 | DOI: 10.1111/j.1540-6261.2005.00749.x | Cited by: 552
FRANCISCO GOMES, ALEXANDER MICHAELIDES
We show that a life‐cycle model with realistically calibrated uninsurable labor income risk and moderate risk aversion can simultaneously match stock market participation rates and asset allocation decisions conditional on participation. The key ingredients of the model are Epstein–Zin preferences, a fixed stock market entry cost, and moderate heterogeneity in risk aversion. Households with low risk aversion smooth earnings shocks with a small buffer stock of assets, and consequently most of them (optimally) never invest in equities. Therefore, the marginal stockholders are (endogenously) more risk averse, and as a result they do not invest their portfolios fully in stocks.
Equilibrium Asset Pricing with Leverage and Default
Published: 11/23/2020, Volume: 76, Issue: 2 | DOI: 10.1111/jofi.12987 | Cited by: 68
JOÃO F. GOMES, LUKAS SCHMID
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 features 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.
Asset Pricing and Risk‐Sharing Implications of Alternative Pension Plan Systems
Published: 10/7/2025, Volume: 81, Issue: 1 | DOI: 10.1111/jofi.13507 | Cited by: 0
NUNO COIMBRA, FRANCISCO GOMES, ALEXANDER MICHAELIDES, JIALU SHEN
We show that incorporating defined benefit pension funds in an incomplete markets asset pricing model improves its ability to match the historical equity premium and riskless rate and has important risk‐sharing implications. We document the importance of the pension fund's size and asset demands, and a new risk channel arising from fluctuations in the fund's returns. We use our calibrated model to study the implications of a shift to an economy with defined contribution plans. The new steady state is characterized by a higher riskless rate and a lower equity premium. Consumption volatility increases for retirees but decreases for workers.
The Cross‐Section of Household Preferences
Published: 7/23/2026, Volume: , Issue: | DOI: 10.1111/jofi.70067 | Cited by: 0
LAURENT E. CALVET, JOHN Y. CAMPBELL, FRANCISCO GOMES, PAOLO SODINI
This paper estimates the cross‐sectional distribution of Epstein‐Zin preferences using the wealth and risky portfolio shares of a large panel of Swedish households. We find modestly heterogeneous risk aversion (standard deviation 0.97, median 7.50) and a meaningfully heterogeneous and right‐skewed time preference rate (TPR; standard deviation 7.31%, median 4.08%) and elasticity of intertemporal substitution (EIS; standard deviation 3.17, median 0.70). Risk aversion and the EIS are only very weakly negatively correlated. We estimate lower risk aversion for households with riskier labor income, and a higher TPR and lower EIS for households that enter our sample with low wealth.