EX ANTE English meaning

Ex-ante is a Latin term that means “before the event,” and it refers to the estimated return on an investment or the earnings that a company or an individual can expect to earn at the end of a given period. Simply put, it is the prediction of an event before it occurs, with the actual outcome being unknown. The obtained ex-ante value can then be compared to the actual performance when it occurs by making a prediction of the outcome. Ex-post represents the actual results achieved by the company, which is the return earned by the company’s investors, as opposed to ex-ante, which is based on estimated returns. Investors can use ex-post data to determine a security’s actual performance, excluding any forecasts or projections that may be influenced by market shocks. The ex-post value of a security can be calculated by subtracting the price paid by investors from the security’s current market price.

Analysts use the ex-post information on investment earnings and security price fluctuations to estimate the expected returns. The projected return (ex-ante) is then compared with the actual return (ex-post) to determine the accuracy of the company’s risk assessment methods. Analysts use fundamental factors to determine the expected returns and then compares them to the actual performance of the security. However, ex-ante is not always accurate because the prediction does not account for unexpected variables, and the market is susceptible to shocks that alter the returns of a security. The term ex-ante refers to future events that are based on forecasts or predictions rather than concrete results. Ex-ante can be used to describe the potential returns of a particular security or company.

  • The ending value is the current market price of the asset or the price that potential investors would pay to acquire the asset today.
  • First, let’s suppose Company ABC is expected to report earnings on a certain date.
  • 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.
  • 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.
  • The ex-post value of a security can be obtained by deducting the price paid by investors from the current market price of the security.

For example, she may analyze the overall economic climate and whether the company’s business operation costs might be affected by it. She may also use past business decisions and earnings statements to hypothesize about the company’s sales figures. Analysts may also provide ex-ante predictions at times when a merger is widely expected, but before it takes place. Such analysis takes into account potential cost savings related to paring redundant activities, as well as possible revenue synergies brought about by cross-selling. 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.

The prediction can happen before the merger happens or immediately after the merger happens, but there is uncertainty about the possible effects of the transaction. First, let’s suppose Company ABC is https://1investing.in/ expected to report earnings on a certain date. An analyst at a research firm will use economic and financial data from its past and present operating conditions to make a prediction regarding its EPS.

What Is the Difference Between an Ex-Ante and Ex-Post Interest Rate?

However, the change in national income will be greater than the change in investment. So, for both firms and the economy, ex-ante and ex-post investments are equally important to be taken into the account. Ex-post savings and ex-post investment are always equal at any level of income. The distinction between ex-ante and ex-post is significant because all variables in the theory of income determination are ex-ante (planned) variables. Ex-post risk differs from ex-ante, which is the future projected risk of a portfolio.

The only source you need is something like Oxford dictionary of economics entries for intensive and extensive margin. Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI’s full course catalog and accredited Certification Programs. For example, if the Fed raises interest rates, we can only know if the decision was right or wrong when the predicted outcome happens.

This component of ex-ante and ex-post investment is taken into account while determining National Income. While the predictions may occur ex-ante, they may also take occur immediately after the completion of the transaction, but there is uncertainty on the expected performance. While the actual event (the merger) has already happened, the ex-ante analysis focuses on the major upcoming event after the merger. Such events may include earnings reports, share price movements, industry dominance, etc. The formula for calculating ex-post is (ending value – beginning value) / beginning value.

  • Ex-post risk differs from ex-ante, which is the future projected risk of a portfolio.
  • There is, however, a deep disagreement between contractualists concerning from which temporal perspective the relevant objections to different principles are to be made.
  • Forecasting is created when future observations are identified, and it uses data that is available at that time.

The ending value is the current market price of the asset or the price that potential investors would pay to acquire the asset today. Predicting the expected returns of a security or investment is often a difficult task, especially due to the unpredictability of the market. Some analysts may attempt to account for expected variables in the market, but the predictions may sometimes miss the targets due to external shocks that affect the financial markets. Therefore, ex-ante analysis cannot be relied upon entirely when making financial decisions. Investors can use the ex-post data to get the actual performance of a security, without including any forecasts or projections that may be affected by market shocks.

Ex ante and ex post meaning

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

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The concepts of ex ante and ex post are the most popular terminological innovations developed by the famous so-called Stockholm School in the 1930s. For example, change of number of workers at factory A from 10 to 11 would be change on extensive margin. Or when talking about capital when company X increases number of trucks form 20 to 25 again it’s change on extensive margin.

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Ex-ante predictions can also be made when a merger is expected to be initiated. The predictions are related to the cost savings that will result from the merger, as well as the possible synergies that the combined entity will enjoy after the merger transaction is completed. Even if the US economy is still doing well in one or two years time, with strong growth – this would suggest that the decision to raise interest rates was justified. However, Krugman feels that it is better to err on the side of caution – it is better for inflation to overshoot than undershoot. In other words, the problems of inflation above the target are not symmetrical with the problems of inflation below the target. Given current knowledge of the economy, the best ex ante decision is to hold back from raising rates.

For example, if this interest rate, combined with the global recession, pushes the US economy back into recession, the ex ante analysis of raising rates may prove it to be the wrong decision. However, economists (such as Krugman) are critical of the decision to raise interest rates. When already employed worker works 1 hour more, or if truck owned by company is used more etc. As Philip Tetlock has shown in Superforecasting, we need to make a lot of predictions to track whether people were right ex ante. They could get lucky, and to our brain an event with a 40% and a 20% chance don’t seem that different, so we need to average over a lot of predictions (a Brier score) to figure out if someone was right. This is why in science we make testable predictions to guard against our tendency to make up plausible-sounding but wrong post-hoc explanations.

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However, they could have used a monkey throwing darts to pick their stocks, so ex ante they were borderline-negligent, and you probably shouldn’t trust them with your money. Here are a couple of examples to demonstrate the meaning of ex-ante in the financial world. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning. Manu Lakshmanan is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. Prior to accepting a position as the Director of Operations Strategy at DJO Global, Manu was a management consultant…

The lender assumes that the rate of inflation will be zero, and expects to receive $110 after the expiration of the loan repayment duration. Assuming that the actual interest rate turns out to be 10% (same as the interest rate charged), the real interest rate will be zero rather than the expected 10%. Ex-ante interest rate is the real interest rate that is calculated before the actual rate of inflation is known. It is the interest rate quoted on loans and bonds, and it does not adjust for the rate of inflation. For example, if a bank lends you $100 at an interest rate of 10%, you can expect to pay $10 as interest without adjusting for the inflation rate.

Then, we examine country-specific data to ascertain whether the two types of financing are complements or substitutes. Finally, we examine exploratory cross-national data on public expenditure determinants, specifically economic, demographic and social determinants. Expenditure estimates to date indicate that the public financing of LTC is highly sensitive to a country’s income, ageing of the population and the availability of informal caregiving. The Commission has also issued block exemptions with specific do’s and don’ts, and written extensive guidance with examples of good and bad behaviour.


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