Macro Financial Trends and Market Expected Returns

Yufeng Han; Yueliang (Jacques) Lu; Guofu Zhou

doi:10.1093/rapstu/raaf014

Macro Financial Trends and Market Expected Returns

Yufeng Han¹; Yueliang (Jacques) Lu²; Guofu Zhou³

¹ University of North Carolina at Charlotte , the · ² University of North Carolina Wilmington , the · ³ Washington University in St. Louis , the

The Review of Asset Pricing Studies 2026

Abstract This paper shows that trends typically used for monetary policy guidance are also effective in predicting market excess returns. Using a linear combination method across 14 economic and financial predictor variables, we find that moving-average trends outperform the variables’ current values in forecasting market returns. Incorporating neural networks further improves these predictions. Our findings underscore the importance of trends, supporting the Federal Reserve’s emphasis on integrating trends with lagged variables. When accounting for nonlinearity, we find that market return predictability is significantly greater than commonly believed. Our results are robust across both U.S. and global equity markets. JEL C52, C53, C55, C58, G17

DOI: 10.1093/rapstu/raaf014
Volume: 16 (2)
Pages: 241-282
Language: en
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