DP14939 The Long-lasting Effects of Experiencing Communism on Attitudes towards Financial Markets

Author(s): Christine Laudenbach, Ulrike M. Malmendier, Alexandra Niessen-Ruenzi
Publication Date: June 2020
Keyword(s): Capital Markets, Communism, Life-time experiences, positive versus negative emotional tagging, Stock-market participation
JEL(s): D03, D14, D83, D84, E21, G11
Programme Areas: Financial Economics, Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14939

Attitudes towards capital markets and stock-market investment still differ widely between Western and formerly communist countries, but there is also significant heterogeneity within the East. We argue that the speed of convergence is predicted by the quality of life-time experiences under communism. Utilizing novel German brokerage and bank data we document that, decades after Reunification, East Germans invest significantly less in stocks and hold more negative views on capital markets if they had unrelated positive experiences, e.g., from Olympic games or living in celebrated showcase cities. Results reverse for East Germans with negative experiences, like environmental pollution and religious oppression.