The Long-lasting Effects of Living under Communism on Attitudes towards Financial Markets / Christine Laudenbach, Ulrike Malmendier, Alexandra Niessen-Ruenzi.

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Laudenbach, Christine

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w26818.Publication details: Cambridge, Mass. National Bureau of Economic Research 2020.Description: 1 online resource: illustrations (black and white)Subject(s):

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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.

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March 2020.

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.