The wisdom of the madness of crowds: Investor herding, anti-herding, and stock-bond return correlation

Sherrihan Radi, Bartosz Gebka and Vasileios Kallinterakis

Journal of Economic Behavior & Organization, 2024, vol. 224, issue C, 966-995

Abstract: We examine investors’ herding/anti-herding behavior in the US stock and corporate bond markets and their impact on stock-bond return correlation. Corporate bonds exhibit herding, with stocks displaying anti-herding. Bond herding and stock anti-herding are weakly related, with each significantly dampening the stock-bond return correlation. This effect is largely driven by their irrational components, affecting mostly the correlation of noise-driven stock and bond return elements, more so during periods of elevated uncertainty, optimistic sentiment and excessively positive economic performance. As the irrational forces in each asset class (stocks; bonds) countervail each other, this implies greater stability and resilience for the financial system.

Keywords: Financial stability; Herding; Anti-herding; Stock-bond correlations; Diversification (search for similar items in EconPapers)
JEL-codes: G11 G13 G14 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:224:y:2024:i:c:p:966-995

DOI: 10.1016/j.jebo.2024.07.005

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