JERUSALEM (Reuters) – Israeli authorities are investigating claims by American researchers that some investors may have had advance knowledge of Hamas’ plan to attack Israel on October 7 and used that information to profit from Israeli securities.
Research by law professors Robert Jackson Jr. of New York University and Joshua Mitts of Columbia University found significant short selling of stocks that led to the attacks that sparked a war that lasted nearly two months.
“Days before the attack, traders appeared to be anticipating the coming events,” they wrote, noting the lack of interest in the MSCI Israel exchange-traded fund (ETF) which “suddenly and significantly rose” on October 2 based on data from the European Central Bank. Financial Industry Regulatory Authority (FINRA).
“Immediately prior to the attack, short selling of Israeli securities on the Tel Aviv Stock Exchange (TASE) increased significantly,” they wrote in their 66-page report.
In response, TASE referred Reuters to the Israel Securities Authority, which said: “The matter is known to the authority and is subject to investigation by all parties involved.”
A spokeswoman for the Securities Regulatory Authority did not provide details, and the Israeli police did not immediately comment.
Short selling, in which investors expect a stock’s price to fall, allowing it to be repurchased at a lower price at a profit, before October 7, “exceeded the short selling that has occurred during many other periods of crises,” the researchers said. “.
This includes the recession that followed the 2008 financial crisis, the 2014 war between Israel and Gaza, and the Covid-19 pandemic.
For Yumi (LUMI.TA), Israel’s largest bank, 4.43 million new shares were shorted during the period from Sept. 14 to Oct. 5 and it made a profit of NIS 3.2 billion ($862 million) on this additional short selling, they wrote.
“Although we do not see an overall increase in short selling of Israeli companies on US exchanges, we do observe a sharp and unusual increase, immediately before the attacks, in trading in risky short-term options on these companies that expire immediately after the attacks,” they said. .
“Our findings suggest that traders who reported the upcoming attacks profited from these tragic events, and consistent with prior literature, we show that trading of this type occurs in gaps in US and international implementation of legal prohibitions on informed trading.”
The professors pointed to patterns that emerged in early April when Hamas was reportedly initially planning its attack on Israel. “Short trading volume in the EIS (MSCI Israel ETF) peaked on April 3 at levels very similar to those observed on October 2, and was significantly higher in volume compared to other days prior to April 3,” they said.
The story of the new study was first published on Israeli financial news site The Marker.
($1 = 3.7120 shekels)
Stephen Shear reports. Edited by Howard Goller
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