Ex post risk is biased measure of ex ante risk - explain please?

CFA Level III
#1

Anyone have an explanation of this? in Layman’s terms

#2

Ex post risk is based on historical data which includes historical events, the historical events affect the return. So if you extrapolate ex post risk to calculate ex ante risk, it is not accurate.

#3

It similar to the disadvantage of Monte Carlo Simulation…“Garbage in Garbage out”. What happened in the past is not necessarily reflective of what will happen in the future

#4

Thanks, this makes sense.

So ex post risk looks at historical returns which is a biased measure (may have errors) in predicted ex ante risk.

Summary

  1. Ex ante - before the event actually occurs, make a prediction.

  2. Ex post - after the event occurs looking at historic return/risk