We present a decomposition of the returns on the Athens Stock Exchange returns in 1996-2014. We are able to express stock market returns as the sum of dividend policy, Book Value and Price to Book. Finally we show that stock market returns vary substantially according to the phase of the business cycle.

1. Ilias Lekkos Lekkosi@piraeusbank.gr
Haris Giannakidis GiannakidisCh@piraeusbank.gr
researchdivision@piraeusbank.gr
Bloomberg Page: <PBGR>
Piraeus Bank
Amerikis 4, 105 64, Athens
Tel: 210 328 8187, Fax: 210 328 8605

2. 2
March 2015
A large amount of academic and empirical research has repeatedly shown the difficulties in estimating a long-
term equilibrium or a “fair” value of stock indices. All of these studies demonstrate the extremely limited
and controversial ability of predictive models to capture the high variability of stock returns.
The crux when it comes to determining a “fair” value for an equity market, is related to the fact that expected
stock returns depend crucially on the level of future dividends, interest rates and other economic variables.
Unfortunately, estimates of those values require correctly specified statistical projections over the long-term as
well as a large history of measurable data points. For example, variables such as the risk premium are not directly
observable and need to be estimated.
Finally, especially for short investment horizons, equity indices are heavily influenced by a large number of
unpredictable and intangible factors, such as the political climate.

3. 3
March 2015
The purpose of this study is to sidestep the pitfalls of the non-predictability of stock markets and to investigate the
evolution of the General Index of the Athens Stock Exchange during the period 1996-2014, using an alternative
approach which enables us:
Ø To deconstruct or segment the General Index returns into three underlying and directly observable factors,
namely the dividend price ratio, the rate of change in book value per share (BV) and the rate of change of price
to book value ratio (P/BV), thereby improving our understanding of the historic development of the Greek equity
market.
Ø To study the covariance of each underlying factor with the macroeconomic environment and the economic cycle.
Ø To diversify our expectations for the evolution of these factors with respect to the current macroeconomic state.
Ø To reconstruct our expectations regarding all the individual factors in a holistic estimate by normalizing our long-
term expectations for the General Index future movements relative to the economic cycle.

4. 4
March 2015
Starting from the apparent tautology that the total return on the General Index can be separated into the dividend
yield and capital gains (in the form of index price appreciation), we end up – see appendix A – with the following
three factors which determine equity returns:
It is important to note, that the above-mentioned relationship constitutes an accounting identity and not, strictly
speaking, a theoretical equation. This means that this relationship holds for all values in the domain of its
constituents.
General Index Return
Dividend Price Ratio
Rate of Change in the Book Value
per Share
(BVPS growth)
Rate of Change in the Price to
Book Valuation Ratio
(P/BV growth)

5. 5
March 2015
Beyond the dividend yield which is easily understood and defined by the dividend policy of listed
companies, the other two factors require further investigation. The rate of change of book value per share is
directly related to the performance of a firm such that securitization of non-distributed profits will lead to an
increase in book value while continuing losses will, sooner or later, lead to reductions in net worth and thus to a
reduction in the book value per share. Therefore the change in BV reflects the positive or negative developments in
the fundamentals of a firm.
In contrast, the rate of change in the price to book value ratio is determined by market forces and reflects the risk
tolerance profile of investors. In periods of high investment risk appetite or high positive expectations, investors are
willing to pay a higher price to own company fundamentals (book value). Conversely, in times of low risk tolerance,
investors rate the same fundamentals value much lower.
General Index Return
Dividend Price Ratio
Change in Company
Fundamentals
Change in Market
Expectations

6. Source:Piraeus Bank Research,Bloomberg 6
March 2015
Evolution of Dividends per Share
As a first step in this analysis, we proceed with the historical evolution of each factor, using data for the last 20 years. Specifically,
the 12-month moving sum of dividends for the General Index is characterized by an upward trend in the period 1996-2008,
recording a historic high in 2008 of €127* per share. After 2008 we observe a short stabilization period and an immediate drop
afterwards due to the unfavourable macroeconomic developments in the country. A historic low was recorded in December 2013
at €11.6 per share.
126,71
11,55
0,00
20,00
40,00
60,00
80,00
100,00
120,00
140,00
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
12 Month Dividend per Share
*Note that this number should not be taken literary as a per share figure, since we are talking
about a value-weighted stock index. This means that all variables are adjusted accordingly by
the index divisor and not the number of shares of the listed firms.

7. Source:Piraeus Bank Research,Bloomberg 7
March 2015
Evolution of Book Value per Share
2.174
663
0
500
1000
1500
2000
2500
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Book Value per Share
The change in the book value of the companies that constitute the General Index is in direct relation to the level of corporate profitability
and therefore the wider course of the Greek economy. Based on that, it is not surprising that during the period 2001-2010 the weighted
book value per share of the index moved upwards, reaching the level of €2,174 per share. Then from mid-2010, it fell dramatically to the
historic low of €663 per share in 2012, influenced both by the overall economic crisis that affected the results of all listed companies and
the banking sector balance sheet impairment from the PSI.

8. Source:Piraeus Bank Research,Bloomberg 8
March 2015
Evolution of Price to Book Value Ratio
6,9
0,5
0
1
2
3
4
5
6
7
8
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Price to Book
As mentioned earlier the price to book value ratio reflects investors’ appetite for risk-taking and simultaneously is a discount
mechanism of market expectations regarding future corporate profitability. Excluding the period 1999-2000 where an investor was
willing to pay up to 7 times more than the book value of the General Index members, the price to book value ratio hovered
between a historic low of 0.5 (late 2010) and 2.8.

9. 9
March 2015
Athens General Index Factors
Source:Piraeus Bank Research,Bloomberg
Looking at the annual returns of the General Index for the period
1996-2014 and the evolution of the three individual factors we
can conclude the following:
Ø The period 1997-1999 is characterized by excessive
investment risk appetite and positive expectations
as stock market returns are mainly driven by changes in
the P/BV ratio and not by corporate fundamentals.
Ø In contrast, the next three years, 2000-2002, are
characterized by a complete reversal and shrinkage
of valuations and market expectations (negative
change in P/BV).
Ø The years 2008 and 2014 can be described as
periods of significant deterioration in expectations
(de-rating) with regard to the evolution of the
stock market as it recorded a large drop in the ratio
P/BV. Of particular interest is the year 2014 as the
downgrading of expectations is not consistent with
the improvement in corporate data. In contrast,
2012 was a period of significant improvement in
expectations (re-rating) despite the retreat of
corporate data.
Ø The five-year period 2003-2007 is characterized by
average annual returns of 20% which were
bolstered by a relatively balanced relationship
between market expectations (P/BV growth) and
firm fundamentals (BV growth).
-120
-100
-80
-60
-40
-20
0
20
40
60
80
100
percentagepoints
DP BVgrowth PBgrowth Return

10. 10
March 2015
Cumulative Rates of Change for Stock Prices and
Factors
Source:Piraeus Bank Research,Bloomberg
The previous findings are confirmed by examining the cumulative
returns of the General Index as well as the cumulative changes of
its individual components. More specifically:
Ø Analyzing the cumulative returns of the Athens Stock
Exchange we note that an investor who placed $100 in late
1996 in the Greek stock market, liquidated his/her position at
€154 in 2014.
Ø It is striking that this performance gain is driven
exclusively via the dividend policy of the equity
market’s listed companies.
Ø Throughout the decade from 1996 to 2005, company
fundamentals or else, the variation of BV, had no material
effect on the performance of the General Index. On the
contrary, the big stock decline in 2011 and 2012 is
interpreted as the dramatic reduction of the book value of
listed firms which was a direct consequence of the profound
economic crisis that struck particularly the banking sector.
Ø During the period 1996-2003, fluctuations in the
General Index (either positive or negative) were
determined almost exclusively by the changes in
market expectations and the risk tolerance attitudes
among investors.
-100%
-50%
0%
50%
100%
150%
200%
250%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
DP BVgrowth PBgrowth Return

11. Source:Piraeus Bank Research,Bloomberg 11
March 2015
Athens General Index Average Returns
The past 20 years of stock return data, confirm that the average annual return of the General Index of 2.3% was determined mainly by
the dividend price ratio of 2.82 percentage points. In contrast, the average effect of the changes in P/BV and BV was only 0.32% and
0.85% respectively. However, the decomposition of historically expected index returns tells us perhaps only half the story. It is obvious
that using two different reference periods, that before the crisis of 2008 and the period after the financial crisis, leads us to a different
interpretation. In particular, both in the post crisis period and in the period between 1996-2007, the rate of change of book value and
that of P/BV ratio were the main factors driving stock returns. In conclusion, we can say that the effect of each factor varies with time
and this time-varying feature is most likely dependent on the domestic and international macroeconomic environment.
2,82 3,61 2,36
-7,46
3,00
-18,76
11,45
-30
-25
-20
-15
-10
-5
0
5
10
15
20
1996-2014 2008-2014 1996-2007
percent
PB growth BV growth DP
22,61
2,29
16,81

12. Source:Piraeus Bank Research,Bloomberg 12
March 2015
The timely identification of economic cycles can give
us important evidence for the expected long-term
equilibrium level of a stock index.
However, because of the delay in the announcement and of
the data point frequency constraints of macroeconomic
variables, their use in determining the phase of economic
cycles is considered quite difficult.
For this reason, we will use the seasonally adjusted
European Commission's Economic Climate Index for Greece
(ESI). This indicator is constructed via the use of research
questionnaires and covers areas such as construction,
services, consumer confidence, industrial production and
retail trade.
Economic Sentiment Index
60
70
80
90
100
110
120
130
ESI ESIsa

13. Source:Piraeus Bank Research,Bloomberg 13
March 2015
Assuming that the phases of the economic cycle are the
following:
We classify the dividend price ratio and the rate of change
of P/B and BVPS depending on the phase of the cycle in
which they are realized.
Expansion
Slowdown
Recession
Upturn
Economic Cycle Phase Tracker
January
2009
February
2015
-2,50
-2,00
-1,50
-1,00
-0,50
0,00
0,50
1,00
1,50
2,00
2,50
-0,3 -0,2 -0,2 -0,1 -0,1 0,0 0,1 0,1 0,2
Level(instandarddeviations)
MonthlyChange
Expansion
Recession Upturn
Slowdown

14. Source:Piraeus Bank Research,Bloomberg 14
March 2015
General Index Monthly Returns per Economic PhaseIt is reasonable to assume that the economic cycle affects
the rates of change of the three components, with this
effect being different for each component.
The results from the classification of the General Index
monthly returns for the four economic cycle phases, are
summarized as follows:
Ø The average monthly return of the General Index in
the phase of recovery and recession is different from
the historical average of stock returns.
Ø We observe extreme performances (higher or lower
than 3 standard deviations) and greater volatility
during the phases of downturn and recession.
Ø It is quite interesting that there are high positive
returns in the phase of slowdown and relatively high
negative returns in the upturn phase.
-4
-3
-2
-1
0
1
2
3
4
E
X
P
A
N
SIO
N
D
O
W
N
TU
R
N
R
E
C
E
S
S
IO
N
U
P
TU
R
N
StandardDeviations

15. Source:Piraeus Bank Research,Bloomberg 15
March 2015
Book Value Rate of Change per Economic Phase
We can better understand stock index returns in each
phase of the economic cycle by examining their individual
components. Starting with the changes in book value per
share (or the change of corporate fundamental) we
observe that:
Ø In the recession phase, we do not identify the
occurrence of extreme negative changes except
during December 2011, where the book value per
share decreased from €1637 to €891.
Ø Outliers and higher variability are observed during the
phases of upturn and expansion.
Ø Apart from the recession phase, in all other phases
the average change in book value per share is very
close to the historical average of the total number of
observations.
-8
-6
-4
-2
0
2
4
EX
PAN
SIO
N
D
O
W
N
TU
R
N
R
E
C
E
S
S
IO
N
U
P
TU
R
N
StandardDeviations

16. Source:Piraeus Bank Research,Bloomberg 16
March 2015
Price to Book Rate of Change per Economic Phase
From the monthly changes in market expectations we
distinguish the following:
Ø Slow adjustment of valuations during the significant
drop in book value in December 2011, where the
change in the P/BV was about 5 standard deviations
greater than the global mean change.
Ø Extreme adverse changes in valuations (de-ratings)
occurred in expansion periods in December 1999 and
six months later while the highest positive change
(re-rating) occurred in January 1999.
Ø Of particular interest is the fact that by accounting for
the extreme values ​​during the four phases of the
economic cycle, the uncertainty in the valuation of
markets is greater in the phases of downturn and
upturn and not in the expansions and recessions.
-4
-3
-2
-1
0
1
2
3
4
5
E
X
P
A
N
S
IO
N
D
O
W
N
TU
R
N
R
E
C
E
S
S
IO
N
U
P
TU
R
N
StandardDeviations

17. 17
March 2015
Source:Piraeus Bank Research,Bloomberg
0
5
10
15
20
25
30
35
DP PB growth BV growth Est Return
percent
Expansion
-15
-10
-5
0
5
10
DP PB growth BV growth Est Return
percent
Downturn
-50
-40
-30
-20
-10
0
10
DP PBgrowth BV growth Est Return
percent
Recession
-5
0
5
10
15
20
25
DP PBgrowth BV growth Est Return
percent
Upturn

18. 18
March 2015
Source:Piraeus Bank Research,Bloomberg
The main feature of all phases is the significant impact of the change in P/BV, i.e. the expectations of future
developments in corporate profitability. Unsurprisingly, expectations are negative during the downturn and recession
phases and positive during upturns and phases of expansion.
Although this observation may be considered trivial, a closer look reveals that in the long term, negative expectations
during adverse cyclical conditions offset positive expectations in the most favourable phases.
In contrast, corporate strategy does not seem to follow the same course as market expectations. Specifically, while the
dividend yield is almost independent of the business cycle, the rate of change in the book value of firms seems to be
correlated with the economic environment. In the phases of expansion and downturn the book value per share
increased by an average of 4-5 percentage points per annum. On the contrary, during the recession phase a dramatic
decrease of 16.5% is experienced while, in the upturn phase, the rate of change is almost imperceptible.

19. Source:Piraeus Bank Research,Bloomberg 19
March 2015
By considering each economic phase separately, we
observe that during the expansion stage in the economic
cycle:
Ø Market expectations, company fundamentals and
dividends contribute positively to the overall
annualized General Index performance that goes
beyond (on average) 30%.
Ø The contribution of Price to Book changes reach on
average three quarters of total return with the
remaining performance coming mainly from the
change in Net Worth of the firms in the stock index.
0
5
10
15
20
25
30
35
DP PBgrowth BVgrowth EstReturn
percent
Expansion
It is important to add that according to the ESI index the average duration of the expansion phase is estimated to be 14 months.

20. Source:Piraeus Bank Research,Bloomberg 20
March 2015
-15
-10
-5
0
5
10
DP PBgrowth BVgrowth EstReturn
percent
Downturn
The downturn phases are characterized by:
Ø Negative average change in market expectations at an
annualized rate of 14%.
Ø Positive change in company fundamentals at
approximately the same level as in the expansion
phase.
Ø Faster and simultaneously stronger market reaction to
the deterioration of economic conditions, which drags
down the average annual return of the General Stock
Index to -7%.

21. Source:Piraeus Bank Research,Bloomberg 21
March 2015
Similarly, in periods of recession, total returns for the index
are characterized by:
Ø Significant changes in the valuation of markets for
stocks which on average surpass -30%.
Ø Strong negative impact on the balance sheets of
companies. The average change in the equity return
is on average -17% per annum.
-50
-40
-30
-20
-10
0
10
DP PBgrowth BVgrowth EstReturn
percent
Recession
We should also note that the recession phase is shorter than the other phases of the cycle, with an average duration estimated to
be 7 months.

22. Source:Piraeus Bank Research,Bloomberg 22
March 2015
-5
0
5
10
15
20
25
DP PBgrowth BVgrowth EstReturn
percent
Upturn
Finally, when the economy moves into the upturn phase:
Ø Market expectations and risk appetite return to
positive levels, consequently boosting total returns.
Ø The book value per share remains relatively stable,
signalling greater uncertainty about the economic
environment for decision making at the corporate
level.

23. 23
March 2015
We rely entirely on the use of the accounting identities of the supply-side valuation model for stock returns. More specifically,
this methodology decomposes the return performance of a stock or an equity index in the individual components of the
dividend yield and capital gains:
Where,
R (t): Equity Index Simple Return at t
P (t): Price at time t
D (t): Annual sum of dividends
B (t): Book value per share
DP (t): Index Dividend-Price Ratio
g (bvps): Rate of Change in Book Value per Share
g (p / b): Rate of Change in Price to Book Value Ratio
( )
( ) ( )
( )
( ) ( ) ( ))/()()(
)(/)(
)(/)(
)(
)(
)(
)(
)(
)(
)(
)(
)(
)(
)(
)(
)(
)(
)(
)(
)(_)(_)(
bpgbvpsgtDP
tBtP
tBtP
tB
tB
tDP
tP
tP
tDP
tP
tP
tP
tD
tP
tP
tP
tD
tP
tP
tYieldDividendtGainCapitaltR
+´+´+=
--
´
-
´+=
-
´+=
-
´+
-
=
-
+
-
=
++=+
ú
ú
û
ù
ê
ê
ë
é
111
111
1
1
1
11
11
11

24. 24
March 2015
Source:Piraeus Bank Research,Bloomberg
-100%
-50%
0%
50%
100%
150%
200%
6,45,64,83,93,12,31,40,6
Years
Expansion
DP BV growth PB growth
-120%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
6,45,64,83,93,12,31,40,6
Years
Downturn
DP BV growth PB growth
-200%
-150%
-100%
-50%
0%
50%
6,45,64,83,93,12,31,40,6
Years
Recession
DP BV growth PBgrowth
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
6,45,64,83,93,12,31,40,6
Years
Upturn
DP BV growth PB growth

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25
March 2015