Israeli students with Images of Israeli hostages held in Gaza (Israel Ministry of Education)
Did the terror organization Hamas and others who knew in advance about the barbaric October 7 attack on Israel profit from this by short selling Israeli stocks and by making other types of financial investments? Law professors Robert Jackson Jr. of New York University and Joshua Mitts of Columbia University seem to think so. They published the research they did on the matter in a report titled “Trading on Terror?”
Recent scholarship, they said, shows that informed traders increasingly disguise trades in economically linked securities such as exchange-traded funds (ETFs), explained the study’s authors who documented a “significant” spike in short selling in the principal Israeli-company ETF days before the October 7 Hamas attack.
The short selling that day, they said, far exceeded the short selling that occurred during numerous other periods of crisis, including the recession following the financial crisis, the 2014 Israel-Gaza war, and the COVID-19 pandemic.
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The researchers also identified increases in short selling before the attack in dozens of Israeli companies traded in Tel Aviv. For one Israeli company alone, Israel’s largest bank, Bank Leumi, 4.43 million new shares sold short over the September 14 to October 5 period yielded profits (or approximates avoided losses) of millions on that additional short selling for one out of hundreds of securities traded on the TASE, they reported.
They also identified a “sharp and unusual increase,” just before the attacks, in trading in risky short-dated options on these companies expiring just after the attacks as well as similar patterns in the Israeli ETF at times when it was reported that Hamas was planning to execute a similar attack as in October.
“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 U.S. and international enforcement of legal prohibitions on informed trading,” they concluded. “We contribute to the growing literature on trading related to geopolitical events and offer suggestions for policymakers concerned about profitable trading on the basis of information about coming military conflict.”
The Israel Securities Authority told Reuters: “The matter is known to the authority and is under investigation by all the relevant parties.”
Tel Aviv Stock Exchange EVP head of trade Yaniv Pagot, however, was not convinced by the findings and criticized the reaserch methods used.
He told the Israeli business publication Globes that the researchers showed a “lack of familiarity with the local market” and confused Agorot for Shekels (100 Agorot equals a shekel).
As a result, Pagot said, “The researchers magnified the loss per share 100 times. This is a fundamentally mistaken assumption.”
“There is also a lack of understanding of what happens on the capital market in Tel Aviv,” he added about the research.
