Abstract This paper discusses layered baud‐space modulation system under arbitrary spatial correlation both at the transmitter and the receiver. Layered baud‐space modulation provides better reliability in spatial modulation systems as well as flexibility in data rates compared to multiple‐active space modulation. Several transmissions occur asynchronously within the time slot. As a result, fractional sampling is employed at the receiver to detect the signals. For this scheme, it is more practical to analyse spatial correlation both at the transmitter and the receiver, since temporal correlation is a likely occurrence. However, asynchronous transmission will lead to higher probability of packet drops when synchronization errors are present. Lower bounds of bit error rates are derived from theoretical criteria based on mutual information and sample covariance of the joint spatial and modulation space. Analytical results for bit error probability are tightly verified from simulations. The channel is assumed to be of frequency‐flat Rayleigh fading form. The tests are carried out under different antenna spacing, amplitude and phase modulation schemes and various number of transmit and receive antenna configurations.