The Long-lasting Effects of Living under Communism on Attitudes towards Financial Markets

Christine Laudenbach, Ulrike Malmendier and Alexandra Niessen-Ruenzi

No 26818, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze the long-term effects of living under communism and its anticapitalist doctrine on households’ financial investment decisions and attitudes towards financial markets. Utilizing comprehensive German brokerage data and bank data, we show that, decades after Reunification, East Germans still invest significantly less in the stock market than West Germans. Consistent with communist friends-and-foes propaganda, East Germans are more likely to hold stocks of companies from communist countries (China, Russia, Vietnam) and of state-owned companies, and are unlikely to invest in American companies and the financial industry. Effects are stronger for individuals exposed to positive “emotional tagging,” e.g., those living in celebrated showcase cities. Effects reverse for individuals with negative experiences, e.g., environmental pollution, religious oppression, or lack of (Western) TV entertainment. Election years trigger further divergence of East and West Germans. We provide evidence of negative welfare consequences due to less diversified portfolios, higher-fee products, and lower risk-adjusted returns.

JEL-codes: D03 D14 D83 D84 E21 G11 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-cis, nep-mac, nep-sea and nep-tra
Note: AG CF POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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