Asymmetric and Cross-Asset Herding: Evidence from Bond and Equity Markets

We examine herding in US corporate bond and equity markets between 2008-2018. Conditioning on market liquidity and volatility, we find significant asymmetric herding behavior in both markets and all credit rating portfolios. More specifically, we document a positive relationship between herding and market liquidity, with the level of volatility intensifying the observed herding effects. Herding is more pronounced in corporate bonds in comparison to equities. Further, we find cross-asset herding spillovers from the corporate bonds to their respective equities. The direction of the cross-herding effect holds during the 2008 global financial crisis, but switches post-crisis from equity to corporate bonds.