Realized drift and equity premium

We show that realized drift, which captures persistent directional price movements arising from order-flow imbalances under limited liquidity, predicts the equity premium. This predictive relationship holds for major equity market index ETFs, is significant across horizons from one to 24 months, and delivers out-of-sample improvements over the historical average. Moreover, combining realized drift with the variance risk premium further enhances return predictability, yielding joint statistical significance. The predictive power of realized drift is stronger in low-liquidity environments, consistent with the interpretation that it captures compensation for liquidity risk.