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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.
