Abstract
This study investigates and compares herding in US corporate bond and equity markets between January 2008 and December 2018. Our initial unconditional tests detect significant herding in speculative grade (high yield) corporate bonds only. However, once we condition on market liquidity and volatility, we find significant asymmetric herding behavior in both markets and their credit rating portfolios (investment grade, high yield and non-rated). The results suggest that investors are inclined to collectively herd towards the market consensus during high market liquidity and low volatility days. Interestingly, the herding effects are more pronounced in corporate bonds in comparison to equities. The findings are robust through the Subprime mortgage crisis and post crisis periods, and hold even after conditioning for both liquidity and volatility market states, simultaneously. Our further tests also provide new empirical evidence of the existence of herding spillovers from US corporate bonds to US equities, where the spillover effect seem to be one sided and time-period specific (during the crisis)