Short sellers knew about Hamas attack, study alleges
Two researchers from New York University and Columbia Law School found a sharp rise in short sales of Israeli stocks in the weeks before October 7.
A study by researchers at New York University and Columbia University claims that traders obtained information about the Hamas attack on Israel on October 7 before it happened, and carried out short trades on the US and Israeli stock exchanges, in the expectation that share prices would fall after the attack.
The researchers, Robert J. Jackson Jr. of the New York University School of law and Prof. Joshua Mitts of Columbia Law School, found a sharp and significant rise in short sales of ETFs that track Israeli companies in the days preceding the attack.
According to the findings, the short sales in question were larger than those that took place in the days preceding previous rounds of fighting between Israel and terrorist groups in the Gaza Strip and before the outbreak of the Covid-19 pandemic. The researchers state that they identified significant short sales before the attack in dozens of companies traded on the Tel Aviv Stock Exchange.
The study shows that, between September 14 and October 5, a short position was built amounting to 4.43 million shares in Bank Leumi. After the Hamas attack, those who built that position reaped profits of NIS 3.2 billion. The researchers write that they did not see a cumulative rise in short positions on stock of Israeli companies traded on US exchanges, but they did identify a sharp and unusual rise in trading in options on such stocks with expiry dates shortly after October 7.
The pair also found similar patterns in trading in Israeli ETFs when there was talk in the past that Hamas was planning an attack similar to the one it carried out two months ago. Their conclusion is that there were traders who knew about the impending attack and profited from the tragic event.
The study points out that, before the legislation on the judicial overhaul in Israel was passed on July 24, 2023, which set off a steep fall in Israeli stocks, there was no similar rise in short sales.
The two law professors say that, all in all, the evidence is consistent with informed trading, and that they are trying to gauge to what extent current securities law could apply to these short sales. They advocate legislation that will close the gap and prevent traders from profiting on the basis of prior knowledge of terrorist attacks.
No comment has yet been received from the Tel Aviv Stock Exchange or the Israel Securities Authority.
Published by Globes, Israel business news - en.globes.co.il - on December 4, 2023.