Ex-Ante vs Ex-Post

The former term refers to "before the event," whereas the latter term refers to "After the event"

Ex-ante is a Latin term meaning "before the event" It is the anticipated return on an investment or the earnings that an individual expects at the end of a given period. 

It involves forecasting and predicting before the occurrence of an event. As a result, market participants are unaware of the event and its relevant information; the actual outcome is still unknown.

The expected result is a benchmark for comparing the predictions with the actual outcomes.

The prediction can be of a business's specific good or commodity, a business unit, or the complete corporate entity.

For example:                                                              

Let's say the central government of a country makes an ex-ante prediction on the inflation of the country, and there are chances that the inflation rate will increase shortly. 

The government will pass further policy changes to keep inflation under control. Since the event will take place in the future, it is unknown how the economy will perform. Keep in mind the prediction is usually based on historical data. 

We can determine if the prediction was wise or not. 

If the inflation will be stable after a certain period, that means the policy was appropriate. 

Alternatively, if the introduction of policy resulted in price hikes in the future, then the policies introduced by the government were not up to the mark. 

What is Ex-Post?

It is a Latin term that means "After the event" It is quite the opposite of ex-ante.

It involves forecasting returns of a security or an asset based on actual data. 

Past performance of returns earned by security is observed, and outcomes are predicted. 

This data allows investors to obtain a security's actual performance without considering expectations and estimates (external factors can impact that).

This information is used for various purposes like forecasting future earnings, uncertainties, or the maximum amount of profit or loss an investment makes in a specified period.

This method presents the actual outcomes of the company based on historical data.

Calculating: 

The ex-post value of an asset can be calculated by taking the opening and closing value of an asset for a specific period. The opening value is taken as a market value at that point in time or the amount paid by investors for purchasing the asset. 

On the other hand, closing value is taken as the current market price or the price investors are willing to pay for acquiring that asset. 

After this, an evaluation of the changes in the value and the revenue generated by the asset is done.

For example: 

To measure a security's returns from 1st January to 31st March, we will calculate the difference between the opening (price on 1st January) and closing price (price on 31st March). For example, if the value obtained is +6%, the assets have appreciated 6% since 1st January.

The derived value can then be used to assess investment price variations, earnings, or projected returns of a security or investment. 

The ex-post value can be compared with predicted returns to check the risk assessment methods' accuracy.

It is mainly used to calculate periods less than a year in length.

Ex-Ante and Ex-Post Analysis

The analysis is the process of gathering, collecting, and analyzing data or information. After researching it, analysts develop a theory or conclusion based on the information presented. 

These analyses are used in fields like predicting investment returns or company earnings.

Financial analysts often use these for making better trades in financial markets by drawing strategies based on these analyses.

1) Ex-ante analysis:

Experts frequently use ex-ante analysis for predicting return on investments based on uncontrollable market variables.

Ex-ante analysis with thorough research can help businesses to predict a large variety of outcomes that can either be favorable or unfavorable for them.

An investor, based on purchasing trends, demand and supply, and news, might predict whether the financial security in which they have recently invested will give them a higher return or not.

2) Ex-post analysis: 

It analyses outcomes after an event has already occurred. Hence, it is a more reliable form of predicting results.

It considers asset price and income earned from it. It also helps to know whether the value of an asset has increased over time or not. 

For example:

After the successful launch of a new tool based on the latest technology, an investor researches and conducts an ex-post analysis to determine whether an investment in this new product will be wise. 

The investments will be profitable to the investor only when demand for that product increases and consumers start liking the product.

Uses  

The ex-ante analysis is essential, as it can help an investor check an investment's viability. In addition, forecasted returns can be used as a benchmark for whether to invest in a particular security or not.

The future value of an asset can be predicted by checking the past performance of that asset and keeping external variables in mind.

An ex-post analysis also helps to calculate an investment's market value by subtracting the resulting value from the original value. 

Therefore, this method can be used in a large number of situations. 

A professional can use ex-post analysis to decide whether the course he had purchased was helpful to him or not. This will help him save money and improve the skills that will assist in securing a job, as some cost was initially incurred on purchasing that course. 

Summary 

Predicted outcomes (ex-ante) can be compared with actual outcomes (ex-post) to check the accuracy of an analyst's predicted results.

This will help them understand the difference between what they expected and what occurred.

It can help forecast the returns earned from an investment or security and check its riskiness.

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Researched and Authored by Tanishq | LinkedIn 

Reviewed and edited by James Fazeli-SinakiLinkedIn

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