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

Abstract

This paper explores how the Panama Company stock price incorporated fake positive news planted by company managers in French newspapers during the spring of 1888 to bait investors into an upcoming securities issue. The results show that news about the Panama Company only had firm-specific effects, making the firm’s main stock more volatile while keeping constant expected returns. This suggests that investors considered the new debt issue a risky operation. Finally, we find a non-contemporaneous positive effect of future news on present stock returns, suggesting an unlawful exploitation of asymmetric information by investors privy to the publication of fake news.