The Review of Economic Studies is one of the core journals in economics. It is essential reading for economists, consistently ranking among the top five journals.

What characteristics of news generate over-or-underreaction? We study the asset-pricing consequences of diagnostic expectations, a model of belief formation based on the representativeness heuristic, in a setting where news events are drawn from categories with extreme distributions of fundamentals. Our model predicts greater over-reaction to news belonging to categories with more extreme outliers, or tail events. We test our theory on a comprehensive database of corporate news that includes news from 24 different categories, including earnings announcements, product launches, M&A, business expansions, and client-related news.

This paper documents that the Pearl Harbor attack triggered a sharp increase in volunteer enlistment rates of American men, the magnitude of the increase was smaller for Black men than for white men and the Black-white gap was larger in counties with higher levels of racial discrimination. The results suggest that political exclusion and discrimination can undermine support for the government during critical times such as war.

This paper studies the efficient allocation in an economy in which firms are connected through input-output linkages and must pay a fixed cost to produce. When economic conditions are poor, some firms might decide not to operate, thereby severing the links with their neighbors and changing the structure of the production network. Since producers benefit from having access to additional suppliers, nearby firms tend to operate, or not, together. As a result, the production network features clusters of operating firms, and the exit of a producer can create a cascade of firm shutdowns.

We discuss how to estimate the interplay between genes (nature) and environments (nurture), with an empirical illustration of the moderating effect of school-starting age on one’s genetic predisposition towards educational attainment. We argue that gene–environment (G × E) studies can be instrumental for (i) assessing treatment effect heterogeneity, (ii) testing theoretical predictions, and (iii) uncovering mechanisms, thereby improving understanding of how (policy) interventions affect population subgroups.

Bank capital requirements are based on book values, which are slow to reflect losses. In this paper, we develop a dynamic model of banks to study the interaction of regulation and delayed accounting. Our model explains four stylized facts: book and market values diverge during crises, the market-to-book ratio predicts future profitability, book leverage constraints rarely bind strictly even as market leverage fans out during crises, and banks delever gradually after net-worth shocks.

Many countries base college admissions on a centrally-administered test. Students invest a great deal of resources to improve their performance on the test, and there is growing concern about the high costs associated with these activities. We consider modifying the test by introducing performance-disclosure policies that pool intervals of performance rankings. Pooling affects the equilibrium allocation of students to colleges, which hurts some students and benefits others, but also affects students’ effort.