Comovement, excess volatility, and home production

Two investment anomalies in aggregate home-production models are investigated: excess volatility and comovement. Adjustment cost in capital accumulation reduces both volatility and the negative correlation in investments on capital goods in the market and at home. Investments comove to the extent that durable goods and time are good substitutes in consumption activities. Consumers substitute durable goods for time at home when the opportunity cost of time is high during booms. Based on the Consumer Expenditure Survey, I show that households' expenditure shares on durable goods are negatively associated with leisure, indicating that durable goods are relatively good substitutes for time. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: E32; J22.