DP13596 Participation Following Sudden Access

Author(s): Nicola Fuchs-Sch√ľndeln, Michael Haliassos
Publication Date: March 2019
Keyword(s): asset market access, Consumer credit, German reunification, Household Debt, household finance, Social interactions, Stockholding
JEL(s): E21, G11
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13596

This paper employs the German reunification "experiment" to study how sudden access to previously unavailable financial products, supported by knowledgeable practitioners, influences participation. Findings provide new perspectives on participation and inertia. 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 participations in all asset classes, while expectations and peer effects are important drivers of the high East German debt participation. Average income among the new peers has had larger effects on East than on West German participation in both securities and consumer debt.