Why can I "fake" the stack trace of an exception in Java?

The stack trace is created when the exception is instantiated, not when it is thrown. This is specified behaviour of the Java Language Specification

20.22.1  public Throwable()

This constructor initializes a newly created Throwable object with null as
its error message string. Also, the method fillInStackTrace (§20.22.5) is
called for this object. 

....

20.22.5  public Throwable fillInStackTrace()

This method records within this Throwable object information about the
current state of the stack frames for the current thread. 

I don't know why they did it that way, but if the specification defines it like that, it is at least consistent on all the various Java VMs.

However, you can refresh it by calling exception.fillInStackTrace() manually.

Also note that you should use Thread.currentThread().getStackTrace() instead of using new Exception().getStackTrace() (bad style).

The stacktrace of the exception is filled in at creation time of the exception. Otherwise it would be impossible to catch an exception, handle it and rethrow it. The original stacktrace would get lost.

If you want to force this you have to call exception.fillInStackTrace() explicitly.

Because you didn't ask that that stack trace be rewritten. It was set when you created it in the setUp method, and you never did anything to alter it.

The Exception class doesn't give you any opportunity to set the method name; it's immutable. So there's no way that I know of where you could re-set the method name, unless you wanted to resort to something heinous like reflection.

Your @Test annotation doesn't tell me if you're using JUnit or TestNG, because I can't see the static import, but in either case you can run a test to see if a particular exception is thrown by using the "expected" member in the @Test annotation.