Working Paper: CEPR ID: DP14939
Authors: Christine Laudenbach; Ulrike M. Malmendier; Alexandra Niessen-Ruenzi
Abstract: 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.
Keywords: capital markets; communism; lifetime experiences; positive versus negative emotional tagging; stock market participation
JEL Codes: D03; D14; D83; D84; E21; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Positive lifetime experiences under communism (P36) | Adherence to anti-capitalist views (P16) |
| Negative experiences (C92) | Pro-capitalist attitudes (P12) |
| Positive unrelated experiences (Y92) | Lower stock market participation (G19) |
| Negative experiences (C92) | Higher willingness to invest in stock market (G11) |
| Negative experiences (C92) | Higher fraction of stocks held in portfolios (G11) |
| Personal experiences (C91) | Financial behavior (G53) |