Ex-Post Risk

The fear that a former boyfriend or girlfriend will start revealing your secrets on social media. Ex post risk...the risk of an ex...posting.

In finance, it's also the name for a technique used to determine potential risk levels.

You might remember from your eighth-grade constitution test that "ex post facto" means a law that punishes someone for something that they did before the law was passed. The same kind of meaning of "ex-post" comes into effect with "ex-post risk."

In general, the term "ex-post" means something like "after the fact." So, for "ex-post risk," you use past experience to determine the risk that something will happen in the future.

You want to buy a stock trading at $25 a share. What's the chance it will go down to $20? Ex-post risk would use statistical analysis of the individual stock's price movement, maybe the industry in general and the market as a whole, to determine the possibility.

So you aren't looking at the company's prospects and guessing at its future. Instead, you're taking into account what's happened before and letting that inform the likelihood of what will occur in the future.

See: Event Risk.