We investigate the effects of a behavioral bias in betas on cross-sectional asset returns. This bias, which we call beta herding, reflects the interaction between sentiment and herding in linear factor models. We demonstrate that beta herding is likely to arise when investors are more confident about the future direction of the market, regardless of whether the market is rising or falling, or when sentiment is high. Contrary to common belief that herding increases during market crises, our empirical evidence indicates that crises appear to lead investors to seek out the fundamental risk-return relationship rather than to herd. In terms of cross-sectional asset returns, we show evidence that beta matters conditionally on beta herding though it does not unconditionally. The conditional explanation of beta herding is distinct from other firm characteristics.