The Wisdom of the Madness of Crowds: Investor Herding, Anti-herding, and Stock- Bond Return Correlation

Radi, Sherrihan; Gebka, Bartosz; Kallinterakis, Vasileios

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.

Citation

Radi, S., Gebka, B., & Kallinterakis, V. (2024). The Wisdom of the Madness of Crowds: Investor Herding, Anti-herding, and Stock- Bond Return Correlation. Journal of Economic Behavior and Organization, 224, 966-995. https://doi.org/10.1016/j.jebo.2024.07.005

• Journal Article Type: Article
• Acceptance Date: Jul 3, 2024
• Online Publication Date: Jul 11, 2024
• Publication Date: 2024-08
• Deposit Date: Jul 3, 2024
• Publicly Available Date: Jul 11, 2024
• Journal: Journal of Economic Behavior and Organization
• Print ISSN: 0167-2681
• Electronic ISSN: 2328-7616
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 224
• Pages: 966-995
• DOI: https://doi.org/10.1016/j.jebo.2024.07.005
• Public URL: https://durham-repository.worktribe.com/output/2515870