Some traders may have been informed about the Hamas plan to attack Israel on October 7 and used that knowledge to make millions of dollars by short-selling Israeli securities, a study by US researchers published on Monday suggests.
Law professors Robert Jackson Jr. from New York University and Joshua Mitts of Columbia University examined trading in exchange-traded funds that invest in Israeli companies, as well as short-selling activity on the Tel Aviv Stock Exchange (TASE) and options activity around Israeli firms traded on US exchanges.
Short-selling is aimed at making a profit on an asset that is expected to drop in price. The seller "borrows" a security and sells it on the open market with the goal of buying it back later at a lower price and pocketing the difference.
Researchers found significant short-selling of shares leading up to the attacks that triggered the Israel-Hamas war.
"Days before the attack, traders appeared to anticipate the events to come," they wrote, citing short interest in the Israel Exchange Traded Fund (ETF) that "suddenly, and significantly, spiked" on October 2 based on data from the Financial Industry Regulatory Authority (FINRA).
The ETF is commonly used as a way for people to make investments in Israel, which on any given day has around 2,000 shares shorted. On October 2, that number shot up to over 227,000 shares, the study revealed.
"And just before the attack, short-selling of Israeli securities on the Tel Aviv Stock Exchange (TASE) increased dramatically," the professors wrote in their 66-page report.
"That's extremely unusual," said Mitts, one of the authors of the study, adding that shares sold short for one Israeli company alone yielded a profit of nearly $900,000.
In another documented example, 4.43 million shares in Leumi, Israel's largest bank, were sold short between September 14 and October 5, yielding profits of 3.2 billion shekels ($862 million). Leumi's share price dropped by almost 9% on October 8 in the immediate aftermath of the attack.
"Taken together, our evidence is consistent with informed traders anticipating and profiting from the Hamas attack," the researchers concluded.
The professors found that the short-selling activity in early October "exceeded the short-selling that occurred during numerous other periods of crisis."
The Israel Securities Authority said it was looking into the findings of US researchers, adding that "the matter is known to the authority and is under investigation by all the relevant parties."
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