Fake news and talking up the market: the case of the Compagnie universelle du canal interocéanique de Panama in 1888

In December 1888, the Panama Company filed for bankruptcy after a turbulent year. An official investigation subsequently uncovered a vast network of corruption involving prominent politicians and journalists. Despite being financially unstable, the company had issued new shares on 26 June 1988 to raise cash and had bribed newspapers to publish positive stories about its financial situation and its prospects. This article analyses the level and tone of the media coverage of the securities issue by the Panama Company and investigates the extent to which the intensive press campaign influenced investors’ behavior. Findings indicate that investors actually reacted counterintuitively and sold their assets as the media coverage of the company became increasingly positive. These results suggest that analysis of the amount of information in the hands of investors at the Paris Stock Exchange would be a fruitful avenue for future research in order to examine the possibility of insider trading.