DP13596 Participation Following Sudden Access

Author(s):	Nicola Fuchs-Schündeln, Michael Haliassos
Publication Date:	March 2019
Date Revised:	February 2020
Keyword(s):	financial market participation, German reunification, household finance, inertia
JEL(s):	E21, G11, G5
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=13596

The German reunification experiment provided sudden access to previously unavailable financial products, supported by knowledgeable practitioners. This setting offers new perspectives on participation, inertia, and product diffusion. Controlling for characteristics, East Germans experienced a jump in securities participation to a level comparable to West Germans' participation immediately following reunification, and to an even higher level for consumer debt, while exhibiting inertia in previously accessible products. They showed no signs of subsequent retreat. Lower financial resources are the most important characteristic explaining lower East German participation in all asset classes, while expectations and peer effects drive the higher East German debt participation.