Has the equity premium been low for 40 years?

There is an increasingly prevalent view among financial economists that the ex-ante equity premium has declined over the last 50 years. In this paper, we present new empirical evidence indicating that there was a structural break in the equity premium in both the U.S. and Europe in the immediate post-WWII period driven by a decline in consumption risk. This is confirmed in complete, segmented and incomplete market settings. The results of this paper demonstrate that the discrepancy between the ex-post and ex-ante equity premia is not a recent phenomenon.