A new study suggests millions could have been made by stock traders with advance knowledge of Hamas attack.
A new U.S. study suggests that stock traders with advance knowledge of the Oct. 7 Hamas attack against Israel may have made millions by short-selling Israeli shares.
Researchers at Columbia and New York universities found sales of Israeli interests skyrocketed in the days leading up to the Hamas attack in a market maneuver known as short-selling.
In that practice, short-sellers essentially bet shares that they expect to drastically fall in price. They pay a fee to borrow shares, then sell them on the open market. When the stock later plummets, the short-sellers buy back those shares at a much lower price, replace what they borrowed, and pocket the profit.
“Days before the attack, traders appeared to anticipate the events to come,” wrote researchers Robert Jackson Jr., from New York University and Joshua Mitts of Columbia University. They cited short-selling that “suddenly, and significantly, spiked” Oct. 2 on the Israel Exchange-Traded Fund, which is commonly used to invest in Israeli interests.
Normally, about 2,000 shares are shorted each day. On Oct. 2, that number shot up to more than 227,000 shares, the study said.
"That's extremely unusual," Mitts said.
Short-selling for a single Israeli company yielded a profit of nearly $900,000, the researchers said.
The professors said they wouldn't be surprised if short-selling profits exceeded $100 million, according to Britain's The Guardian.
“Our findings suggest that traders informed about the coming attacks profited from these tragic events," the study said. "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 (insider) trading.”
Mitts also said, "This looks to have been the product of a single trader, based on what we can see in the data. This is extraordinarily unusual."
The Israel Securities Authority issued a statement in response to the study, saying, "The matter is known to the authority and is under investigation by all the relevant parties."
Mitts told CBS News that finding the individual trader would be "exceedingly difficult" because of the market's internal workings.
But there is a larger point to be learned, he said. The short-selling spikes were signs that should be incorporated into politics and public policy, he said.
"What are these signals? What are they teaching us?" he said.
Likewise, there were security signs leading to the Hamas attacks. An Israeli soldier told CBS News last week that her unit witnessed unusual activity on the Gaza side of the border six months ago, and reported it. "They didn't take anything seriously," she said of her chain of command.
Financial flares were also going up, Mitts said. "The stock market was screaming, 'There's something going on!'" he told CBS News.
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