Ex-Ante

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What is 'Ex-Ante'

Ex-ante, derived from the Latin for "before the event," is a term that refers to future events, such as future returns or prospects of a company. Ex-ante analysis helps to give an idea of future movements in price or the future impact of a newly implemented policy.

An example of ex-ante analysis is when an investment company values a stock ex ante and then compares the predicted results to the actual movement of the stock's price.

BREAKING DOWN 'Ex-Ante'

"Ex-ante" refers to any prediction that is made prior to either before all of the variables are known, or generally before an event occurs. For example, an ex-ante price on a stock is an informed estimate functioning as a prediction of future events when not all variables are known. It provides for a predictive model, allowing for the uncertainty surrounding current conditions or any unknown factor that may change the outcome.

In general finance, company earnings may be predicted ex ante. Often, this involves examining current known financial data and extrapolating by considering anticipated activity and previous experiences. For example, a company may note an ex-ante rise in sales due to the release of a new model of one of its products. Ex-ante predictions can apply to anticipated gains or losses, as the term is neutral in regards to the nature of the event.

Ex-Ante and Ex-Post

Once the time allocated in the ex-ante prediction has passed, it can be compared to the actual financials, also referred to as the ex-post. This can help refine future ex-ante price predictions, as it may provide new insight into previously unknown variables. It can also be used to reassess other ex-ante prices that were based on the previous models before those variables were known.

Ex-Ante and Trading

Market forecasts are generally considered to be ex-ante. By examining current market trends and known influences, a prediction is made regarding the direction of individual stocks and securities, or entire exchanges. Since there is no way to be certain that a new factor will not affect actual performance, the ex-ante forecast is not guaranteed to be accurate after the fact.

Often, market predictions cannot entirely understand or account for certain investor decisions. Since not all investor action is rational, it is not possible to predict certain events with absolute certainty. In cases where all factors and influences are known, then it would only apply to investments considered to have no risk. In any circumstance where there is a chance the market will respond in a way that puts the investment at risk, all associated predictions must be considered ex ante.