The Economic Coss of Veoes: Evidence from NATO Kyriakos Drivas PhD Candidae Deparmen of Agriculural Economics Universiy of California-Berkeley 207 Giannini Hall # 3310 Universiy of California Berkeley, CA 94720-3310 kdrivas@are.berkeley.edu Absrac This paper examines, via an even sudy approach, he effec of Greece s veo in NATO agains FYROM s bid for accession, on he socks of Greek firms conducing business in FYROM. The resuls show a negaive effec on he socks of hese Greek firms even hough he veo news was aken ino accoun in an earlier dae han he acual veo announcemen. Tha dae is idenified as he dae where negoiaion over a bilaeral resoluion appeared o collapse. In conclusion, wheher he economic relaions beween he wo counries will furher depreciae or no, will heavily depend on heir bilaeral poliical relaions. Keywords: veo, NATO, even sudy, inernaional poliical conflic, business relaions.
Inroducion In order for a counry o ener an inernaional organizaion, such as he Norh Alanic Treay Organizaion (NATO) and he European Union (EU), all he counries already in he organizaion have o agree in acceping ha counry. In oher words, each counry in such an inernaional organizaion has a veo power regarding an ouside counry's poenial accession. In realiy, his veo power has rarely been exercised 1 ; however, if a sole counry chooses o exercise is veo power, he economic relaions beween he wo counries migh be harmed. The focus of his paper is on Greece's veo o he Former Yugoslav Republic of Macedonia (FYROM), as is provisional name in he Unied Naions (UN), or Republic of Macedonia, as is consiuional name, agains NATO accession. Greece is opposed o FYROM s consiuional name 2 and saw an opporuniy o push for a resoluion over he name issue, as i is commonly referred o, when FYROM applied for NATO accession in December of 2005. Greece saed ha she would veo FYROM s bid if a name resoluion was no achieved by he NATO summi of April 2 nd 2008 in Buchares, Romania. Greece evenually veoed FYROM s bid on April 2 nd, afer inense negoiaions over a resoluion failed. The objecive of his paper is o examine he effec of Greece s veo on he business relaions beween hese wo counries. The focus is on examining he effec of he announcemen of he veo on Greek firms' sock reurns via an even sudy approach. The Greek firms under consideraion are firms ha operae in FYROM via acquisiions, invesmens or esablishmen of subsidiaries and rade in he Ahens Sock Exchange (ASE) 3. The sandard even sudy analysis, as his oulined in Brown and Warner (1985) and Campbell e al (1997) or more recenly in he economic lieraure in Guidolin and 1 Besides Greece s recen veo in NATO ha will be discussed in deail in his paper, oher cases include France s veo o Unied Kingdom s membership applicaion during he early 60 s in he European Economic Communiy (now EU), he ongoing veo of US o Iran s accession o he World Trade Organizaion (WTO) and Turkey s veo on Cyprus regarding NATO accession. 2 For a review on Greece s opposiion, consul Kofos (1999) and Rasku (2007). 3 The way he projec was iniially conceived was o gaher daa from he Macedonian Sock Exchange (MSE) o conduc he even sudy analysis. Two facors however discouraged his venue. Firs, he MSE is a very hinly raded Sock Exchange and second only hree firms were idenified as firms wih Greek ineres. In conras, eigh Greek firms were idenified in he ASE as firms wih business ineress in 1
Ferrara (2007), will be adoped. The basic mehodology of an even sudy consiss of esimaing residuals from an Ordinary Leas Squares (OLS) marke model over an esimaion period prior o he even window; hese are denoed as he Abnormal Reurns (AR s). Nex, he esimaed coefficiens from he OLS marke model are employed o predic AR s over he even window. If he AR s are sysemaically differen prior and pos he even dae, hen i can be inferred ha he even dae had an effec on he socks or porfolio under consideraion. To conduc formal saisical ess, non-parameric rank and sign ess are employed (Corrado 1989, and Corrado and Zivney 1992). A conrol porfolio is also consruced, as in Abadie and Gardeazabal (2003) and Abadie, Diamond and Hainmueller (2007). The conribuion of his paper is wofold. Firs, he case of hese wo neighboring counries meris aenion on is own. Despie heir long sanding dispue over he name issue, here has been a subsanial growh in he rade and business relaions beween hese wo counries over he pas decade 4 ; as a resul he wo economies have developed a high degree of inerrelaedness. I is herefore worhy o sudy wheher his degree of business cooperaion was affeced, and in wha way, by he veo. In addiion, aking ino accoun ha he wo counries are locaed in he Balkans, a hisorically unsable erriory, he exploraion of heir economic relaions is furher warraned. Second, he paper conribues o he lieraure regarding he effecs of inernaional dispues on he business relaions beween he counries involved. For insance, For insance, Liebman and Tomlin (2008) found ha he announcemen of EU realiaory ariffs agains cerain US impors, riggered by he proecionism of he US seel indusry, had a significan negaive effec on he socks of US firms ha were exporing o he EU. Chavis and Leslie (2006) found significan negaive effecs of French wines sales in he US as a resul of he boyco iniiaed by France's opposiion o he Iraq war in he Unied Naions Securiy Council. Benzen and Smih (2002) found negaive effecs of French wines sales in Norway afer calls for boycos due o French nuclear esings during 1995-96. This paper conribues o his lieraure by examining a FYROM. 4 In 2006, Greece was FYROM's second bigges Foreign Direc Invesor (FDI) wih 320 million Euro following Hungary wih 350 million Euro (Naional Bank of Republic of Macedonia 2007, Hellenic Republic Minisry of Foreign Affairs 2008). 2
differen kind of inernaional dispue; namely, Greece s veo in NATO agains FYROM s accession. The resuls show ha even hough he veo had a negaive effec on sock reurns, i had, o a large exen, been aken ino accoun in an earlier dae han he veo announcemen on April 2 nd 2008. This dae is idenified o be he dae ha he negoiaions for a resoluion over he name issue appeared o collapse (March 17 h 2008) since he Greek side had repeaedly saed ha if he name issue was no resolved by he NATO summi she would exercise he veo. The marke appeared more responsive o ha dae in conras o he acual veo announcemen dae. Hence, he overall resuls imply ha he marke esimaed ha he business relaions beween he wo counries will be harmed. This finding agrees wih he lieraure on he economic effecs of inernaional dispues. Paricularly for hese wo counries, he finding suggess ha he economic relaions migh be furher harmed if here is no poliical resoluion in he fuure. The res of he paper is oulined as follows. Firs, a brief hisory of he conflic beween Greece and FYROM is oulined wih emphasis in he recen years and in paricular in he period prior o Greece's veo in NATO. Basic economic figures depicing he business and economic relaions beween he wo counries are also oulined. Then he daa and he even sudy mehodology are oulined. Nex he resuls are presened. Finally, he paper concludes. Name Dispue, Business Relaions and NATO Accession Afer Second World War, Josip Broz Tio, he leader of he Federal People's Republic of Yugoslavia, esablished he souhernmos province of he counry as one of is six republics. The province was named as People's Republic of Macedonia. A ha poin, Greece expressed concerns over he neighboring sae's name. Greece's larges Norhern Province is also named Macedonia, while Thessalonica, Greece's second larges, in populaion, ciy is locaed a his province. The reasons Greece has been opposing o is neighboring counry's name can be found in he aricle a he Inernaional Herald Tribune by Greek Miniser of Foreign Affairs, Dora Bakoyannis, published on April 1 s 2008. The conroversy over he name sparked afer Sepember 8 h 1991 where FYROM 3
declared is independence from he former Socialis Federal Republic of Yugoslavia (as i was renamed in 1963). On July 30 h 1992, FYROM applied for membership in he UN. However, given Greece's objecion on FYROM's consiuional name (i.e. Republic of Macedonia) is UN admission was delayed. The inense debae beween he wo counries and he alks wih he UN led finally o he admission of FYROM by he UN Securiy Council on April 7 h 1993. The relaions of he wo counries were furher harmed when Greece issued an embargo, wih he excepion of food and pharmaceuicals, o FYROM on February of 1994. During he embargo, a number of business opporuniies for boh sides were los (Kofos, 1999). Finally, on Sepember 13 h 1995 he wo counries signed an Inerim Accord in New York; he embargo was disconinued and boh sides made considerable progress in faciliaing heir relaions in good spiri. However, for Greece he issue ha sill remained unresolved was he name issue. For he nex nine years, here was no significan progress owards he resoluion of he name issue since boh governmens were benefiing from he inacion. FYROM had kep is consiuional name inac and herefore here was no reason o reignie inernaional conflic. Even hough for Greece here was sill he name issue in place, i was very likely ha any poliical pary in power ha would deal wih his subjec would incur a heavy poliical loss. Despie he poliical conflic over he name issue, he wo counries have been ineracing economically hrough rade and business aciviies. In paricular, since 1997, Greece has been an imporan Foreign Direc Invesor (FDI) for FYROM. In 2006, according o FYROM's Naional Bank, FYROM's second bigges FDI was Greece wih 320 million Euro following Hungary wih 350 million Euro (Naional Bank of Republic of Macedonia 2003, 2004, 2005, 2006, 2007 and 2008 and Saisics Deparmen of Naional Bank of Macedonia 2003). According o he Hellenic Republic Minisry of Foreign Affair, in is annual repor for 2007, Greece is he bigges FDI wih 985 million euro afer aking ino accoun re-invesmens and acquisiions. In addiion, Greek invesmens accoun for he creaion of 20,000 jobs in FYROM (Hellenic Republic Minisry of Foreign Affairs, 2008). As of 2007, in erms of rade, Greece was, for FYROM, he 4 h larges supplier 4
wih 535.3 million euro and 3 rd larges clien wih 408.3 million euro (Hellenic Republic Minisry of Foreign Affairs, 2008). Even hough for Greece, FYROM doesn' place as high as a rade parner, i is a sill an imporan parner. For Greece, FYROM is he 32 nd larges supplier and he 13 h larges clien. However, afer FYROM's applicaion for membership in he EU in March of 2004 and in NATO in he end of 2005, he procedures for a resoluion over he name issue were reignied. Greece is a member of he EU and NATO and has veo power regarding issues such as he admiance of anoher counry in he organizaions. From 2005, Mahew Nimez, a UN appoined mediaor, sared approaching boh sides o find a resoluion. Even hough he Greek governmen hadn' commied on he exercise of a veo, is posiion changed on Ocober 19 h 2007. The Greek prime miniser saed ha wihou a resoluion, Greece would exercise a veo on boh he EU and NATO accessions. From hen on, and unil he NATO summi on April 2 nd, here were a series of meeings beween high ranked officials, from boh counries, and Mahew Nimez in pursuance of a resoluion prior o he NATO summi. On February 19 h 2008, appoined officials from boh counries (Adamanios Vassilakis from Ahens and Nikola Dimirov from Skopje) me in Ahens o hear Mahew Nimez's proposed names/soluion (BBC February 20, 2008). However, boh sides seemed no o agree wih he majoriy of he proposed soluions. On February 22 nd 2008 he Greek prime miniser re-ieraed ha no soluion, equals no inviaion (Skai News March 2, 2008) and on March 6 h 2008, during he NATO summi in Brussels, he Greek Miniser of Foreign Affairs formally saed he prime miniser's posiions o he NATO counries (The Inernaional Herald Tribune March 7, 2008). Prior o he March summi, anoher meeing beween Mahew Nimez and negoiaors Dimirov and Vassilakis failed o ge closer o a soluion in New York on March 1 s (BBC March 3, 2008). Afer individual meeings wih UN officials wih boh sides, he FYROM Prime Miniser Nikola Gruevski and Greek Miniser of Foreign Affairs Dora Bakoyannis me during he EU summi. However, boh sides appeared relucan in saing ha here was any progress (The Irish Times March 14, 2008). However, he final blow in he negoiaions appeared o be he meeing beween Mahew Nimez and officials Dimirov and Vassilakis on Monday March 17 h, 2008 in 5
Vienna. Mahew Nimez offered a new proposed soluion ha presened i as a ake-i-orleave-i (BBC March 18, 2008). The FYROM side rejeced he proposed soluion one day laer; however, i became obvious on he same day ha FYROM would rejec he offer since i had declined a similar offer in he pas. A ha ime i was fairly obvious ha a soluion would no be feasible by he NATO summi which was on April 2 nd. On March 21 s he wo sides saed heir opimism for a resoluion afer meeing wih US assisan Secreary of Sae, Dan Fried in Brussels (The Inernaional Herald Tribune, March 22, 2008). Even hough a new proposal was suggesed by Mahew Nimez on March 25 h a he UN headquarers in New York, his was quickly rejeced by he Greek side via he Greek Foreign Miniser Dora Bakoyiannis (Ehnos, March 26, 2008). On April 2 nd, he Greek Prime Miniser, during he Leaders' dinner during he NATO summi, saed ha Greece would no be able o agree on he accession of FYROM in NATO unil he name issue is resolved (BBC, April 3, 2008). On April 3 rd a formal saemen by he NATO Secreary General Jaap de Hoop Scheffer was released saing ha once FYROM had resolved is differences wih Greece, NATO would invie i o join he organizaion (NATO 2008). For he even sudy, wo daes should meri aenion. The mos obvious one is he April 2 nd 2008 in which he Greek Prime Miniser formally veoed FYROM s accession in NATO. However, by ha ime he majoriy of he public opinion, in paricular in Greece, was anicipaing he veo. The reasons were ha negoiaions for a resoluion had failed and he Greek governmen had repeaedly saed ha in he absence of a resoluion she would exercise he veo. The negoiaions appeared o collapse when an offer by Mahew Nimez, which appeared o be he final one prior o he NATO summi, did no appear o resolve he dispue; his offer ook place on March 17, 2008. Thus, his dae should also be explored as a poenial even dae. 6
Daa and Mehodology Daa Daa on sock prices for he ASE were downloaded from www.4rader.ne 5. The daa are adjused for splis. In order o calculae he daily reurns, he sandard formula was applied (Campbell e al 1997 pg.12): (1) R i, = P i, + D P i, i, 1 P i, 1 where P i, is he closing price of sock i a day. R i, is he daily reurn. D i, is he dividend of he sock given a day. Dividend daa were colleced from www.euro2day.gr. The marke index is he general index of he ASE (Genikos Deikis (GD) or in Greek: Γενικός Δείκτης) and given ha dividends are no applicable is reurns are calculaed as: (2) R m, = P m, P P m, 1 m, 1 where he subscrip m denoes he marke index. Mehodology The mehodology is a sandard even sudy analysis as in Campbell e al (1997), or more recenly in he economic lieraure as in Guidolin and Ferrara (2004, 2007). The main idea is o calculae AR s of a sock or a porfolio for an esimaion window and hen use hose esimaes o projec AR s prior and pos an even dae. If he even had an effec hen he AR s pos he even dae should be significanly differen han he AR s prior he even dae. The firs sep, like in every even sudy is o idenify he even and herefore he even dae. The even in his case is he veo ha Greece exercised on FYROM's bid for NATO accession. The veo was exercised during he Leader's dinner on he evening of 7
April 2 nd. Hence, i was known by he morning of April 3 rd when he ASE opened. However, as menioned in he previous secion, an imporan dae, on which i became obvious ha he veo would be exercised, was on March 17 h, 2008. Therefore, for he purposes of his sudy wo even daes are idenified; he firs is on March 17 h and he second is on April 2 nd. The nex sep is o idenify an esimaion period for each even dae. The esimaion period has o be large enough o be able o projec accuraely he pre-even and pos-even period (Brown and Warner 1980, 1985). Figure 1 displays a general noaion of a imeline for an even sudy. 0 is he iniial dae of he esimaion period; for boh evens 0 is se o March 1 s 2007. 1 is he final dae of he esimaion period; for he March 17 h even 1 is se o March 6 h 2008 while for he April 2 nd even, 1 is se o March 20 h 2008. 2 sands for he even dae. Finally, 3 is he final dae in he even window; for he March 17 h even 3 is se o March 27 h 2008 while for he April 2 nd even 3 is se o April 10 h 2008 6. Noe ha he esimaion sample size for he April 2 nd even is equal o 265 observaions, while boh pre-even and pos-even periods have five rading days. The esimaion sample size for he March 17 h even is equal o 256 observaions, while boh pre-even and pos-even periods have five rading days as well. The hird sep is o idenify he firms ha were affeced by he veo. Since he focus of his paper is o examine he effec of he veo on he Greek firms ha were conducing business in FYROM, various sources employed o idenify hese firms wih he main source being he Hellenic Republic Minisry of Foreign Affairs (2008). The Hellenic Republic Minisry of Foreign Affairs issues annual repors for he bilaeral relaions beween Greece and oher, imporan o Greece, counries-parners. One of hese counries is FYROM. Besides oulining he economic aciviy in FYROM, he repor also presens he Greek firms ha have invesed in he FYROM economy. From here, he firms ha rade in he ASE were idenified; hese socks compiled he Treaed porfolio and are oulined in Table 1. As i can be seen from Table 1 mos Greek firms have esablished subsidiary firms or have acquired majoriy shares of FYROM 5 This websie is considered a premier source for individuals and/or firms ha deal wih he ASE. 6 For all inens and purposes, daes where he sock marke is closed are no included in Figure 1. 8
companies. each sock i: To consruc he AR s for each sock we ran he following regression via OLS for (3) R i, = α + βrm, + ε i, where ε i, is he error erm. The residuals of his regression will be he AR's. Tha is: (4) AR i, = eˆ i, = Ri, αˆ ˆ βrm, Noe ha his group of regressions will be esimaed wice, one for each even dae. Thus, for he April 2 nd even equaion (3) will be esimaed for each sock from March 1 s 2007 o March 20 h 2008. For he March 17 h even, equaion (3) will be esimaed for each sock from March 1 s 2008 o March 6 h 2008. Afer esimaing equaion (3), he esimaed parameers will be used o predic he AR s for he pre-even and pos-even period. For graphical exposiion AR's are prey noisy o graph since hey are regression residuals (Abadie and Gardeazabal 2003 and Guidolin and Ferrara 2007). Hence, for graphical purposes, Cumulaive Abnormal Reurns (CAR's) will also be employed. CARi,T,T+τ, (Cumulaive Abnormal Reurn of sock i from period T o period T+τ), is calculaed as: T τ (5) + CAR i, T, T + τ = ARi, = T Noe ha ha he AR's and CAR's for each of he wo porfolios (one for each even) are calculaed as a simple average of he AR's and CAR's of he 9 socks under consideraion. For insance, he abnormal reurn for each of he wo Treaed porfolios for any given dae is calculaed as: 9 AR Treaed i, (6) AR = i= 1 9 9
A simple average was chosen since he purpose is o idenify he overall marke effec on firms ha had business ineress in FYROM. If he porfolio was o be weighed based on he amoun of invesmens by each firm hen he porfolio would be dominaed by merely a handful of hem. To formally examine wheher he effec is saisically significan, non-parameric sign and rank ess are employed. In even sudies, Corrado (1989) and Corrado and Zivney (1992) showed ha non-parameric ess ouperform heir parameric counerpars since hey don rely on symmery of he underlying disribuion for correc specificaion. In addiion, Campbell and Wasley (1993) show, hrough simulaions, ha he nonparameric ess perform well for a porfolio wih fewer han 10 securiies. The mechanics of he wo ess are presened in he Appendix. To validae he resuls, a Synheic Conrol porfolio is consruced (Abadie, Diamond, and Hainmueller 2007 and Abadie and Gardeazabal 2003); he deails of he procedure are oulined in he Appendix. The inuiion behind he mehodology is o compile a conrol porfolio, using socks from he same sock exchange bu unrelaed o he even under consideraion, which saisically resembles he Treaed porfolio prior he even period, and hen es wheher he Synheic Conrol porfolio incurs an effec due o he even. If here is an effec, hen ha implies ha he even would have an effec o a porfolio wih he same feaures as he Treaed porfolio bu wihou FYROM involvemen. Hence, any effec measured on he Treaed porfolio should no be aribued o he veo effec. However, if he Synheic Conrol porfolio doesn incur an effec, hen he effec measured on he Treaed porfolio may be aribued o he veo news. Resuls Figure 2 displays he AR's and CAR's of he Treaed porfolio for he March 17 h even. I is clear ha he even caused a decrease in he CAR s for he Treaed porfolio. From he even dae (March 17 h ) o he end of he even window (March 27 h ) we see an approximaely 5% decrease in he Cumulaive Abnormal Reurns of he porfolio. Table 2 displays he values of he sign and rank ess for asymmeric windows (0,+1), (0,+3), 10
(0,+5) and symmeric windows ( 1,+1), ( 3,+3), ( 5,+5). In 10 ou of 12 cases, he effec is significan a he 5% significance level. Therefore, here is indicaion ha he announcemen and decline of he ake-i-or-leave-i offer by Mahew Nimez had a saisically negaive significan effec on Greek firms ARs ha operae in FYROM. Figure 3 displays he AR s and CAR s of he Treaed porfolio for he April 2 nd even. In he firs wo days pos he even he AR s are posiive; however, hey urn negaive afer ha. Hence, i appears ha he announcemen of he veo had an ambiguous effec on he Treaed Porfolio. By conducing he same ess as previously, i can be seen from Table 2 ha in only one case ou of welve, he effec is significan a he 10% significance level. From he above, i appears ha he news of he veo was aken ino accoun prior o he veo announcemen on April 2 nd. In paricular, he veo news was aken ino accoun when a final offer for a resoluion of he name issue failed. As previously oulined, he Greek side had repeaedly saed ha she would veo FYROM s bid in NATO if hey hadn resolved he name issue prior he NATO summi. On March 17 h, i became obvious ha a soluion would no be achieved since he offer for a resoluion was presened as a ake-i-or-leave-i. Given, ha he March 17 h even is now he focus, he Synheic Conrol porfolio is consruced only for ha even. Table 3 displays he socks ha compile he Synheic Conrol porfolio and heir weighs. Figure 4 displays he CAR s of he Synheic Conrol and Treaed porfolio during he Synheic Conrol esimaion period. Even hough in absolue values he CAR s deviae, here appears o be an agreemen in he rend beween he wo porfolios a any given period. Wih ha in mind, Figure 5 displays he effec of he March 17 h even on he Synheic Conrol porfolio s CAR s. In conras wih he Treaed porfolio, he Synheic Conrol porfolio incurs an increase on is CAR s due o he even. In addiion, as i can be seen from Table 2, in welve ou of welve cases, he posiive rend observed in Figure 5 is no saisically significan. Therefore, a porfolio wih similar saisical characerisics as he Treaed porfolio did no incur an effec due o he March 17 h even. Thus, he effec observed in he Treaed porfolio can be aribued o he associaion of hese firms conducing business in FYROM and herefore o heir response 11
o he veo news. The reason he marke esimaed ha hese firms would incur losses due o he veo news, was he anicipaion ha he economic relaions beween he wo counries would be harmed and by his way following similar pah as he poliical relaions. A variey of ways could be anicipaed by he marke ha would depreciae he business relaions; hese could be formal or even informal acs, such as boycos. Conclusion The objecive of his paper was o examine he effec of Greece's veo, o FYROM s bid for NATO accession, on he business relaions beween he wo counries. In paricular, he effec on Greek firms ha conduc business in FYROM was examined. The reason was wofold. Firs, hus far he wo counries have had good economic relaions, herefore faciliaing Greek firms o pursue a number of business opporuniies in FYROM. In addiion, for FYROM, Greek invesmens are an imporan source of growh; recen daa depic ha Greek invesmens are responsible for 20,000 jobs in FYROM (Hellenic Republic Minisry of Foreign Affairs, 2008). Thus, i was imporan o examine wheher furher business opporuniies for boh sides could be los. Second, considering he hisorically unsable, boh economically and poliically, geographic locaion of hese wo neighboring counries (namely he Balkans), i is crucial o explore heir economic relaions and sudy wheher hese relaions could be harmed by shocks caused due o poliical conflics. The resuls show ha he veo had a negaive effec on he abnormal reurns of hese Greek firms. Furhermore, even hough he announcemen of he veo had a moderae negaive effec, he negaive news had been discouned prior o he veo announcemen. In paricular, he negaive effec ook place when he negoiaions for he resoluion over he name issue appeared o collapse. This resul shows ha he marke esimaed a fuure downurn on he business relaions beween he wo counries caused by shocks iniiaed in he inernaional poliical arena. Up o his dae, negoiaions are sill ongoing. On Ocober 8 h 2008, Mahew Nimez proposed a new se of ideas (BBC Ocober 9, 2008); however, boh sides appeared relucan o commi for or agains he new proposed soluion. A new meeing under Mahew Nimez ook place on February 11 h 2009; however, here was no a new 12
proposed soluion (Morrison 2009). Thus, i is no clear ye wheher a poliical resoluion can be achieved, or how long i migh ake o be achieved and as his sudy showed, he business relaions are no unaffeced by his poliical dispue. In conclusion, wheher he economic relaions, beween hese wo counries, will be furher harmed will heavily depend on he saus of heir poliical relaions. References Abadie, A., A. Diamond, and J. Hainmueller. Synheic Conrol Mehods for Comparaive Case Sudies: Esimaing he Effec of California's Tobacco Conrol Program. Naional Bureau of Economic Research Working Paper Series No. 12831 (2007). Abadie, A., and J. Gardeazabal. The Economic Coss of Conflic: A Case Sudy of he Basque Counry. American Economic Review 93, no. 1(2003): 113-132. Bakoyannis, Dora. The View from Ahens; Macedonia and NATO. The Inernaional Herald Tribune. The New York Times Media Group April 1, 2008. Barholdy, J., D. Olson, and P. Peare. Conducing Even Sudies on a Small Sock Exchange. The European Journal of Finance 13, no. 3(2007): 227 252. BBC Monioring Europe. Envoy Offers Macedonia, Greece Final Name Proposal. Poliical Supplied by BBC Worldwide Monioring February 20, 2008. BBC Monioring Europe. Macedonia, Greece Fail o Agree on Name, Nimez Noes Essenial Differences. Poliical Supplied by BBC Worldwide Monioring March 3, 2008. BBC Monioring Europe. UN Mediaor Presens Three Varians for Macedonia's Inernaionally Used Name. Poliical Supplied by BBC Worldwide Monioring March 18, 2008. BBC Monioring Europe. Greek Veo o Macedonia's NATO Enry Severe Blow o NATO. Poliical Supplied by BBC Worldwide Monioring April 3, 2008. BBC Monioring Europe. UN Mediaor Presens New Se of Ideas in Greek- Macedonian Name Dispue. Poliical. Supplied by BBC Worldwide Monioring Ocober 9, 2008. Benzen, J. and V. Smih. French Nuclear Tesings and Consumpion of French Wine in Denmark, Inernaional Journal of Wine Markeing, 14(3)2002: 20 36. 13
Brown, S. J., and J. B. Warner. Measuring Securiy Price Performance. Journal of Financial Economics 8, no. 3(1980): 205-258. Brown, S. J., and J. B. Warner. Using Daily Sock Reurns - he Case of Even Sudies. Journal of Financial Economics 14, no. 1(1985): 3-31. Campbell, C. J., and C. E. Wasley. Measuring Securiy Price Performance Using Daily Nasdaq Reurns. Journal of Financial Economics 33, no. 1(1993): 73-92. Campbell, J. Y., A. W. Lo, and A. C. MacKinlay. The Economerics of Financial Markes. Princeon, N.J.: Princeon Universiy Press, 1997. Chavis, L., and P. Leslie. Consumer Boycos: The Impac of he Iraq War on French Wine Sales in he U.S. Naional Bureau of Economic Research Working Paper Series No. 11981(2006). Corrado, C. J. A Nonparameric Tes for Abnormal Securiy-Price Performance in Even Sudies. Journal of Financial Economics 23, no. 2(1989): 385-395. Corrado, C. J., and T. L. Zivney. The Specificaion and Power of he Sign Tes in Even Sudy Hypohesis Tess Using Daily Sock Reurns. Journal of Financial and Quaniaive Analysis 27, no. 3(1992): 465-478. Ehnos. The proposal does no Saisfy Greece. (In Greek) March 6, 2008. Guidolin, M., and E. La Ferrara. Diamonds are Forever, Wars are no: Is Conflic Bad for Privae Firms? American Economic Review 97, no. 5(2007): 1978-1993. Guidolin, M., and E. La Ferrara. Diamonds are Forever, Wars are no: Is Conflic Bad for Privae Firms? CEPR Discussion Paper No. 4668 (Ocober 2004). Hellenic Republic Minisry of Foreign Affairs. Annual Repor 2007 for he Economy of FYROM and is Bilaeral Economic Relaions wih Greece. Office of Relaions (Skopia). In Greek (2008). Kofos, Evangelos. Greece s Macedonian Advenure: The Conroversy over FYROM s Independence and Recogniion, in Van Coufoudakis, Harry J. Psomiades and Andre Gerolymaos (eds.), Greece and he New Balkans. New York: Pella Publishing 1999. 361 94. Liebman, B. H. and K. M. Tomlin. Safeguards and Realiaory Threas. Journal of Law & Economics 51(2008): 351-376. Morrison, J. Friendly Talks. The Washingon Times February 17, 2009. Naional Bank of Republic of Macedonia. Annual Repor 2003. Skopje, 2004 14
Naional Bank of Republic of Macedonia. Annual Repor 2004. Skopje, 2005 Naional Bank of Republic of Macedonia. Annual Repor 2005. Skopje, 2006 Naional Bank of Republic of Macedonia. Annual Repor 2006. Skopje, 2007 Naional Bank of Republic of Macedonia. Annual Repor 2007. Skopje, 2008 NATO 2008. Buchares Summi Declaraion. Heads of Sae and Governmen Paricipaing in he Meeing of he Norh Alanic Council. Buchares summi, April 3, 2008. Rasku, M. On he border of Eas and Wes: Greek Geopoliical Narraives. Disseraion, Universiy of Jyväskylä, 2007. Skai News. No Soluion Equals No Inviaion. (In Greek) March 2, 2008. Saisics Deparmen of Naional Bank of Republic of Macedonia Foreign Direc Invesmens Repor: 1997-2003. (also: hp://www.nbrm.gov.mk/defaulen.asp?iemid=79d1b7e53ff9b74fa7da40c529aab550 ). The Inernaional Herald Tribune. Greece Refuses o Back Macedonia for NATO. March 7, 2008. The Inernaional Herald Tribune. Greece and Macedonia Aim o Solve Name Rif. March 22, 2008. The Irish Times. No Progress Over Macedonia's Name. March 14, 2008. 15
APPENDIX I. Synheic Conrol Porfolio The firs sep in consrucing a conrol porfolio is o collec a random sample of socks; for his sudy 30 socks are colleced. The firs necessary condiion for a sock o be in he sample is o rade hrough he enire period (i.e. no a single rading day wih volume equal o zero). The second necessary condiion is for he firm associaed wih he sock no o have any business ineress in FYROM. To he bes of our knowledge his condiion is saisfied. From hese 30 socks a synheic conrol porfolio is compiled as in Abadie, Diamond, and Hainmueller (2007) and Abadie and Gardeazabal (2003). The procedure is oulined for consrucing a Synheic Conrol porfolio for he March 17 h even. In he case a hand, in essence we have o pick a weigh vecor W (30x1) in order o minimize he following quaniy: ' ( Z W ) V ( Z Z W ) Z0 1 0 1 where Z 0 is a 6x1 vecor ha conains he average (elemen (1,1)) and sandard deviaion (elemen (2,1)) of he Treaed porfolio AR's from April 30 h 2007 unil March 7 h 2008. In addiion i conains Treaed porfolio AR's for March 11 h, 12 h, 13 h and 14 h (he res four elemens in he vecor). On he oher hand, Z 1 is a 6x30 vecor where in column i he average, sandard deviaion, of he AR's from April 30 h 2007 unil March 7 h 2008, and he AR's for March 11 h, 12 h, 13 h and 14 h for he i h sock are locaed. V is a symmeric posiive semidefinie marix. Adoping Abadie, Diamond, and Hainmueller (2007) and Abadie and Gardeazabal (2003) V is se o minimize he Mean Square Predicion Error beween he AR's of he reaed porfolio and he weighed AR's of he conrol porfolio. Given ha he process is no rivial, heir code was downloaded from hp://www.people.fas.harvard.edu/~jhainm/sofware.hm. Afer obaining W, we employ hem o consruc he Synheic Conrol porfolio. The Synheic Conrol porfolio is comprised by he original socks muliplied by heir weighs. So, o obain he AR's for he Synheic Conrol porfolio: AR = AR W Synheic All _ Socks 226 x 1 226 30 30 1 16
where in All Socks AR _ 30 226, each column i corresponds o a sock, while here are in oal 226 observaions for each sock beween April 30 h 2007 and he end of he even window (i.e. March 27 h 2008). II. Non-Parameric Tess The wo ess, adoped by Barholdy e al (2007), are presened: Rank Tes Define U i = K i 1+ T ) ( i Where K i is he rank of The saisic for a single period is calculaed as: AR i for he i h securiy a rading dae where = 0,, 2. Rank = 1 N N i= 1 S( K) ( U 0.5) i Where S ( K) = 1 T 1 2 ( U i 0.5) = = N 0 i 1 N 2 Where T is equal o he esimaion sample size plus he number of he even window observaions (i.e. T= 3-0 +1). N is he number of securiies in he porfolio; N=9 for he Treaed porfolio and N=6 for Synheic Conrol Porfolio. N is he number of nonmissing observaions a period. The exension o muliple periods is sraighforward. For insance for hree period symmeric window ( 1,+1), he saisic becomes: 17
Rank = 1 N 2 + 1 i i= 1 = 2 1 3S( K) N ( U 0.5) Sign Tes Define G i 1 = 0 1 if if if AR AR i i AR i Median( AR ) > 0 Median( AR ) = 0 Median( AR ) < 0 i i i Where Median AR ) is he median of securiy i esimaed over he enire period ( i (esimaion plus even window) and = 0,, 2. Ki is he rank of AR i for he i h securiy a rading dae where = 0,, 2. The saisic is calculaed as: Sign = 1 N N i S( G) = 1 G i Where S ( G) = 3 N 1 1 = = Gi T N 0 i 1 2 Where T is equal o he esimaion sample size plus he number of he even window observaions (i.e. T= 3-0 +1). N is he number of securiies in he porfolio; N=9 for he Treaed porfolio and N=6 for Synheic Conrol Porfolio. N is he number of nonmissing observaions a period. The exension o muliple periods is sraighforward. For insance for hree period symmeric window ( 1,+1), he saisic becomes: 18
Sign = 1 N N 2 + 1 i= 1 = 2 1 3S( G) G i 19
Figure 1. Timeline and dae noaions for an Even Sudy. Esimaion Period Even Window 0 1 2 3 Figure 2. Abnormal Reurns (AR's) and Cumulaive Abnormal Reurns (CAR's) of he Treaed porfolio for he pre-even (March 7 h -14 h ) and pos-even period (March 18 h -Marh 27 h ). CAR AR Reurns -.04 -.02 0.02.04 07 Mar 08 12 Mar 08 17 Mar 0820 Mar 08 27 Mar 08 Dae 20
Figure 3. Abnormal Reurns (AR's) and Cumulaive Abnormal Reurns (CAR's) of he Treaed porfolio for he pre-even (March 27 h -April 1 s ) and pos-even period (April 3 rd -April 8 h ). CAR AR Reurns -.02 -.01 0.01.02.03 26 Mar 08 02 Apr 08 09 Apr 08 Dae 21
Figure 4. Cumulaive Abnormal Reurns (CAR's) of he Treaed and Synheic Conrol porfolios from he beginning of he synheic conrol esimaion period (April 30 h 2007) unil he end of he esimaion period (March 7 h 2008). CAR_Treaed CAR_Synheic Reurns -.1 -.05 0.05.1 01apr2007 01jul2007 01oc2007 01jan2008 01apr2008 Dae 22
Figure 5. Abnormal Reurns (AR's) and Cumulaive Abnormal Reurns (CAR's) of he Synheic Conrol porfolio for he pre-even (March 7 h -14 h ) and pos-even period (March 18 h -Marh 27 h ). CAR_Synheic AR_Synheic Reurns -.005 0.005.01 12mar2008 17mar2008 26mar2008 Dae 23
Firm Name in Greece Firm Name in FYROM (if applicable) Sock Symbol in ASE Indusry ALPHA BANK ALPHA BANK ALFA Banking Hellenic Peroleum OKTA -SKOPJE AD ELPE Oil Refinemen Hellenic Telecommunicaion Organizaion (OTE) COSMOFON ΟΤΕ OTE Telecommunicaions KRI-KRI KRI-KRI KRI Dairy Myilineos Holdings SA MYTIL Mining Naional Bank of Greece STOPANSKA BANKA ETE Banking SIDENOR S.A. DOJRAN STEEL SIDE Seel TITAN Cemen USJE CEMENTARNICA TITK and TITP Cemen Table1. Firms in he Treaed Porfolio. 24
Treaed Porfolio Synheic Conrol Porfolio March 17 h Even nd April 2 Even March 17 Even Even Window Rank Sign Rank Sign Rank Sign Saisic p-value Saisic p-value Saisic p-value Saisic p-value Saisic p-value Saisic p-value (0,+1) -2.00 0.05-1.90 0.06 0.49 0.63 0.00 1.00-0.27 0.78 0.00 1.00 (0,+3) -3.20 0.00-2.69 0.01 0.76 0.45 0.34 0.74 0.11 0.91 0.82 0.41 (0,+5) -3.77 0.00-3.01 0.00 0.18 0.86 0.14 0.89-0.71 0.48-0.34 0.74 (-1,+1) -2.01 0.04-1.74 0.08 1.59 0.11 0.58 0.56-0.38 0.70-0.24 0.81 (-3,+3) -2.61 0.01-2.41 0.02 1.73 0.08 0.89 0.37-0.49 0.63 0.16 0.88 (-5,+5) -2.29 0.02-2.13 0.03 0.18 0.85 0.00 1.00-0.52 0.60-0.87 0.38 Table 2. Sign and Rank saisics and heir wo-ailed p-values. Saisics are displayed for he Treaed porfolio for each of he wo even daes and for he Synheic Conrol porfolio for he March 17 h dae. LIBAN 0.002 SAGD 0.718 SELO 0.046 SFA 0.062 SOLK 0.033 YGEIA 0.139 Table 3. Weighs of socks ha compile he Synheic Conrol Porfolio. 25