The Role of Composite Habits in Asset Prices and Business Cycles: A Bayesian Approach

Alexandre Dmitriev and Qiaoxian He

No 24, Working Papers from University of Auckland, Economic Policy Center (EPC)

Abstract: Habit formation defined over a composite measure of consumption and leisure helps align predicted asset pricing and business cycle moments with their observed counterparts. We employ Bayesian maximum-likelihood techniques to assess the empirical significance of generalized composite habits within a production-based asset pricing model. Using U.S. quarterly data on output, consumption, investment, and hours worked, our findings indicate a very high level of habit intensity and a moderate degree of habit persistence, although the data are less informative regarding the latter. Overall, the estimated model successfully matches the observed equity premium and key business cycle moments.

Keywords: Composite Habits; Asset Prices; Business Cycles; Bayesian Estimation (search for similar items in EconPapers)
JEL-codes: C11 E32 G12 (search for similar items in EconPapers)
Date: 2025-10
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.auckland.ac.nz/assets/business/our-res ... icy-centre/024WP.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cyc:wpaper:024

Access Statistics for this paper

More papers in Working Papers from University of Auckland, Economic Policy Center (EPC) Contact information at EDIRC.
Bibliographic data for series maintained by Alexandre Dmitriev ().