Traders made millions in anticipation of the October 7 Hamas attack, study says

Israeli regulators are examining a report alleging that investors made millions of dollars by short-selling Israeli stocks days before the Oct. 7 Hamas attack and appeared to have profited from anticipation of the bloody attack, several media outlets reported Tuesday.

The unknown traders behind the activity placed bets against the value of a bundle of Israeli stocks five days before the massacre, leading to a “significant increase in short selling” of that fund, according to Professor Robert J. Jackson Jr. of the New York University School of Law and Joshua Mitts of Columbia Law School wrote in a study published Monday.

Traders made similar bets against the value of “dozens” of Israeli companies trading in Tel Aviv, the authors said.

“Our results suggest that traders who were aware of the impending attacks profited from these tragic events,” Jackson and Mitts wrote.

Short selling is a trading strategy that allows investors to bet that a stock’s value will decline. Short sellers borrow shares of a company or fund and sell them at the current market price with the expectation that the price of those shares will soon fall. When prices fall, investors buy back shares at the lower value and return them to the lender, recording the margin between the original share value and the new, lower value as profit.

“Short selling that day far exceeded short selling that occurred during numerous other crisis periods, including the post-financial crisis recession, the 2014 Israel-Gaza war, and the Covid-19 pandemic,” Jackson and Mitts wrote.

In one case, investors sold the unusually large sum of 4.43 million new shares of Bank Leumi, an Israeli bank, on the Tel Aviv Stock Exchange between September 14 and October 14. 5 point, wrote Jackson and Mitts.

The Tel Aviv Stock Exchange rejected Jackson and Mitts’ initial claims that traders made an $859 million profit from Bank Leumi’s short position, citing a flaw in its methodology. The authors then revised that figure to about $8 million, but maintained their finding that 4.43 million shares had been sold short.

The Washington Post could not immediately reach Israeli law enforcement for comment.