CFA Level II Book 4 Equity: Semantics wording problem Prac Q5 Reading 29

A

ajenkins

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Qualification: Either I have pick up a semantics mistake or this may seem like an incredible stupid question…
Question 5 of Practice Questions in Reading 29 from CFA Level II Book 4 (Equity):
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Answer in the book is C., but as the ‘surprises’ were favourable shouldn’t the equity premium be higher allowing for mean reversion i.e. future surprises will more likely be unfavourable and therefore drive the equity premium up?

Apologies if I am missing something obvious…
 
there were surprises (surprises in inflation and productivity), so it was HIGHER than was normal.
so it should be adjusted downward… if it is to be credibly used as a measure of historical equity risk premium - what is wrong with that?
 
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