The Israeli government is investigating claims by American researchers that some stock traders may have had prior knowledge of the Oct. 7 Hamas attack on Israel and used that information to earn millions of dollars by short-selling Israeli companies.
In a draft paper released on Monday, law professors Robert Jackson Jr. of New York University and Joshua Mitts of Columbia University said they identified a “sharp and unusual” spike in trading in “risky short-dated options” on Israeli companies in the days leading up to the deadly Hamas invasion of Israel.
Short-sellers bet against companies whose shares they expect to fall in price. They pay a fee to borrow shares in those companies and then sell them for the current market price, hoping to make a profit by buying them back for less before the shares have to be returned.
“Our findings suggest that traders informed about the coming attacks profited from these tragic events,” the professors wrote in the paper entitled “Trading on Terror?”
“Days before the attack, traders appeared to anticipate the events to come,” they explained, noting that short interest in the MSCI Israel Exchange Traded Fund (EIS), which tracks the performance of a basket of Israeli securities, “suddenly and significantly spiked” on Oct. 2, five days before Hamas terrorists attacked Israel and reignited the Middle East war.
“And just before the attack, short selling of Israeli securities on the Tel Aviv Stock Exchange increased dramatically,” they added.
To illustrate how unusual the bet against the Israeli market was, the New York professors pointed to the volume of short transactions in EIS units from 2009 to 2023, during which Israel experienced many crises—from the aftermath of the 2008 financial crisis to the 2014 Gaza conflict to the global COVID-19 pandemic to the more recent nationwide protest against Prime Minister Benjamin Netanyahu’s judicial reform proposal.
Throughout all 3,750 trading days in this 14-year period, the short volume on EIS on Oct. 2 was in the top 99 percent percentile, according to the paper.