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"After the event"

What is Ex-Post?

Ex-post is a Latin word that means “after the event,” and it is the opposite of the Latin word “ex-ante,” which means “before the event.” It refers to the actual returns earned by a security or investment.




Usually, most investors forecast the expected returns of a security based on the historical returns of the security. However, it is not always accurate, and the expected returns may differ from the actual returns due to the unpredictable shocks that affect the financial markets. Ex-post returns vary from ex-ante returns due to the fact that the former represents the actual yields attributable to investors rather than the estimated returns.


How It Works

Ex-post represents the actual outcome, which is the return earned by an investor. It shows how a security or asset performed compared to what the investors initially projected. It is obtained by deducting the price paid by investors from the market price of the asset to get the variance. Since the ex-post value is not based on probabilities and projections, it can be used by investors to forecast future earnings of the company.

One of the ways in which ex-post is used is in Value at Risk (VAR) study. The study estimates the maximum loss that an investment will incur at any particular time. In this case, the study qualifies the level of risk within an investment portfolio or company over a particular time horizon. It can be conducted on a specific position or whole portfolios managed by a firm.

The study calculates the potential loss than an entity will incur and the possibility of occurrence of the specific amount of loss. Using the information provided by VAR, institutions can assess if they hold sufficient capital reserves to cover the estimated losses. The VAR metric is used by commercial banks and investment firms to determine the occurrence ratio of potential losses and control the level of risk exposure.


Ex-Post Analysis

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.

Usually, the ex-post value is calculated by taking into account the starting and closing values of the asset during a defined period – any increase or decline in asset value and the earned income during the period. For example, when considering the first quarter of the year ending March 31, we consider the starting value on January 1 and the closing value on March 31, and any changes in the asset value and the income earned during that period.

The ex-post information is used in performance attribution analysis to determine the performance of a portfolio based on its return and correlation with other factors. The analysis starts by selecting the asset classes that the fund manager chooses to invest in. The asset classes describe the specific securities and the market place where they originate. For example, the asset class may include large-cap US stocks that originate from the US stock market.

Ex-post performance analysis uses regression analysis of the returns earned by the portfolio against the returns of the market index. Such a comparison helps determine how much of the portfolio’s profit or loss are as a result of market exposure. Regression analysis shows the amount of alpha and beta attributable to the portfolio in comparison to the market index.

Ex-post information can also be used to create forecasts. The value of the forecast is first obtained by deducting the starting value of the assessment period from the closing value of that period. The beginning value is the market value of the security at the beginning of the period, while the closing value is the current market value at the end of the period. Forecasting is created when future observations are identified, and it uses data that is available at that time.


Ex-Post Risk

Ex-post risk is a type of risk measurement method that estimates the risk associated with an investment based on previous returns. Ex-post risk involves analyzing the historical returns of a portfolio to understand how the returns will vary in the future. It is used by investors to determine how risky a potential investment is and estimate the potential loss that they are likely to incur during a trading day.

Ex-post risk differs from ex-ante, which is the future projected risk of a portfolio. Ex-ante makes a projection that may turn out inaccurate when the actual returns are obtained, whereas ex-post uses actual past returns to determine the possible return steams over time. An investment company can value an investment or security ex-ante and compare it to the actual movement of the security’s price.


Related Readings

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

  • Held to Maturity Securities
  • Rate of Return
  • Term to Maturity
  • Investing: A Beginner’s Guide

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