The equity premium puzzle and the ex post bias

Jakob B. Madsen, Ratbek Dzhumashev

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This article argues that high historical excess returns to equity were the result of a severe ex post bias in the period from 1915 to ca 1960 because inflation surprises during this period drove a wedge between ex ante and ex post returns to bonds. Furthermore, it is shown that ex ante and ex post returns to stocks are identical in a steady state. Adjusting the ex post equity premium by the ex post bias reduces the equity premium to an arithmetic mean of 3.3-4.4% over the past 132 years.

Original languageEnglish
Pages (from-to)157-174
Number of pages18
JournalApplied Financial Economics
Volume19
Issue number2
DOIs
Publication statusPublished - 22 Jan 2009
Externally publishedYes

Fingerprint

Dive into the research topics of 'The equity premium puzzle and the ex post bias'. Together they form a unique fingerprint.

Cite this