Habit persistence in assets demand

Habit persistence is typically modeled in consumption when investigating implications for asset demands. We test habit persistence in six asset demand categories using U.S. data and a dynamic forward-looking model. We find habit persistence is greater for liquid assets compared to riskier assets and may in part explain low holdings of risky assets. Cash assets are found to be substitutes with other liquid assets. Consistent with portfolio analysis, riskier asset categories, money market mutual funds, and bonds are found to be complements. Those two risky asset categories and a third risky asset category have budget elasticities greater than unity.