Can managers successfully deceive investors? Media attention and market manipulation during the Panama scandal.

This article examines how the stock price of the Compagnie Universelle du Canal Interocéanique de Panama (the Panama Company) incorporated fake positive news planted by its managers in French newspapers during spring 1888 to attract investors for a debt securities issue. Using historical stock market data and media content analysis, the study finds that the fake news campaign affected only the Panama Company's stock, increasing its volatility without raising expected returns, indicating market skepticism about the company's financial health and the new debt issue. The research also uncovers evidence suggesting insider trading, as future fake news appeared to influence present stock returns, implying unlawful exploitation of asymmetric information. Overall, the findings highlight the complex role of media in financial markets and the challenges investors face in discerning true from misleading information.