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Ex-Ante

Reviewed by Bhavana | Updated on Oct 05, 2020

Catalogue

Definition of Ex-Ante

Ex-ante refers to a future event as in the possible returns via specific security or a company's returns. Taken from Latin, it means "prior to the event". Much of the industry research is ex-ante, which focuses on the impacts of long-term cash flows, profits, and revenues.

Although this kind of ex-ante analysis focuses on the economics of the business, it also relates back to asset prices. Buy-side analysts, for example, frequently use fundamental factors to assess a stock price target, then compare the expected outcome to the actual performance.

What are the Fundamentals of Ex-Ante?

"Ex-ante" practically includes some kind of forecast in advance of an event or before market participants are aware of the relevant evidence. For example, earnings estimates require an ex-ante study. They take into account the expected output of all business units in a corporation, and individual products in some cases.

This also includes the simulation of cash uses, such as capital gains, dividends, and stock purchases. For certain, none of these results can be known; but making a prediction sets an expectation which serves as a basis for comparison versus recorded actuals.

An Important Note

If the incident that tried to forecast ex-ante study has passed, it is then possible to compare expectations vs actuals, which is called ex-post. Looking back on ex-post predictions helps to refine them further, and also offers extra insight.

It is always difficult to account for all variables with all of the ex-ante analysis. The economy itself too often seems to be behaving erratically. For this reason, price forecasts that take several fundamental variables into account often miss the mark because of exogenous market disruptions that affect almost all stocks. It is for this reason that no ex-ante study can be entirely relied on.

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