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

Abstract

We show that exposure to anti-capitalist ideology can exert a lasting influence on
attitudes towards capital markets and stock-market participation. Utilizing novel survey,
bank, and broker data, we document that, decades after Germany's reunification, East
Germans invest significantly less in stocks and hold more negative views on capital
markets. Effects vary by personal experience under communism. Results are strongest
for individuals remembering life in the German Democratic Republic positively, e. g.,
because of local Olympic champions or living in a "showcase city". Results reverse for
those with negative experiences like religious oppression, environmental pollution, or
lack of Western TV entertainment.

Keywords: Capital markets, Communism, Memory, Emotional tagging, Stock-market participation

JEL Classification: D03, D14, D83, D84, E21, G11