Israeli authorities are investigating claims by US researchers that some investors may have known in advance about the Hamas plan to attack Israel on 7 October and used that information to earn millions of dollars by short-selling Israeli shares.
Research by law professors Robert Jackson Jr from New York University and Joshua Mitts of Columbia University found significant short-selling of shares leading up to the attacks that triggered the war.
Short-sellers place bets on shares that they expect to fall in price. They pay a fee to borrow shares in a company and then sell them in the hope of buying them back at a lower price and pocketing the profit.
“Days before the attack, traders appeared to anticipate the events to come,” the researchers wrote, citing short-selling of an exchange traded fund that broadly tracks the performance of the Israeli stock exchange that “suddenly, and significantly, spiked” on 2 October.
“And just before the attack, short-selling of Israeli securities on the Tel Aviv Stock Exchange (TASE) increased dramatically,” they wrote in their 66-page report. One of the researchers told the Telegraph newspaper that it was not inconceivable that the profits from this short-selling were “above $100m”.
Their research was based on data from the Financial Industry Regulatory Authority.
The Israel Securities Authority (ISA) said it was aware of the matter and that it was “under investigation by all the relevant parties”. A spokesperson for the ISA did not elaborate, and Israeli police did not immediately comment.
According to the research, the short-selling observed prior to 7 October “exceeded the short-selling that occurred during numerous other periods of crisis”, including the recession after the financial crisis in 2008, the 2014 Israel-Gaza war, and the Covid-19 pandemic.
In one example documented in the research, 4.43m new shares in Leumi, Israel’s largest bank, were sold short between 14 September and 5 October. Leumi’s share price dropped by almost 9% on 8 October in the immediate aftermath of the attack.
The report notes that the sharpest increase in short-selling occurred during what is normally a time of relatively little activity in Israel due to Jewish holidays.
The research also found that while there was no increase in shorting of Israeli companies on US exchanges, there was an “unusual increase” in “risky” trades just before the attacks. “Our findings suggest that traders informed about the coming attacks profited from these tragic events, and consistent with prior literature we show that trading of this kind occurs in gaps in US and international enforcement of legal prohibitions on informed trading.”
The professors noted similar patterns of short-selling in early April, when it was reported that Hamas was initially planning its attack on Israel.
Short-selling “peaked on April 3 at levels very similar to those observed on Oct 2, and was far higher by an order of magnitude than other days prior to April 3,” they said.
News of the study was first reported on Israel’s financial news website The Marker.
Reuters contributed to this report