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

91 Pages Posted: 25 Feb 2020 Last revised: 24 May 2022

See all articles by Christine Laudenbach

Christine Laudenbach

SAFE and Goethe University

Ulrike Malmendier

University of California, Berkeley - Department of Economics; University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Alexandra Niessen-Ruenzi

University of Mannheim, Department of Finance; University of Mannheim - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 7, 2020

Abstract

We show that personal experiences and quality of life under communism exert a lasting influence on individuals' moral assessment of capital markets and on their stock-market participation.
Utilizing novel German brokerage, bank, and survey data, we document that, decades after Germany's reunification in 1990, East Germans invest significantly less in stocks and hold more negative views on capital markets. The effect varies by the length and intensity of exposure to communist ideology. Moreover, results are strongest for individuals who experienced life in the GDR positively, e.g., because of local Olympic champions or living in a "showcase city".
Results reverse for East Germans with negative experiences, e.g., due to suffering religious oppression, environmental pollution, or lack of access to Western TV entertainment.

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

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

Suggested Citation

Laudenbach, Christine and Malmendier, Ulrike and Niessen-Ruenzi, Alexandra and Niessen-Ruenzi, Alexandra, The Long-Lasting Effects of Living under Communism on Attitudes towards Financial Markets (January 7, 2020). Available at SSRN: https://ssrn.com/abstract=3526926 or http://dx.doi.org/10.2139/ssrn.3526926

Christine Laudenbach (Contact Author)

SAFE and Goethe University ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt, 60323
Germany

Ulrike Malmendier

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
(510) 642-8724 (Phone)
(510) 642-6615 (Fax)

HOME PAGE: http://www.econ.berkeley.edu/~ulrike/

University of California, Berkeley - Haas School of Business ( email )

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Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Centre for Economic Policy Research (CEPR)

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United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=918

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance ( email )

Mannheim, 68131
Germany

University of Mannheim, Department of Finance ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181 1595 (Phone)

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