Did Hamas make millions by betting against Israel stock market before 7 Oct attack?

Two months after the deadly Hamas attack on Israel, there have been several reports of how the Jewish nation missed warnings. There was a colossal intelligence failure and even neighbouring Egypt had reportedly cautioned the country days before the 7 October assault. Now a new study suggests that five days before the strike, the deadliest in Israel’s history, signs may have appeared on stock exchanges. According to the study by researchers from Columbia University and New York University (NYU) titled “Trading on Terror”, there was a significant short-selling of shares before the attacks, which triggered the war. Short selling is a trading strategy aimed at making a profit off an asset that is expected to drop in price. We take a look at what the research found out and who could have made profits off the terror attacks. What does the study say? The research conducted by law professors, Joshua Mitts of Columbia University and Robert Jackson Jr from NYU, revealed that some traders might have had prior knowledge of the 7 October Hamas attack and profited off it. They bet against the Israeli economy and made profits by short-selling on the Israel stock exchange. “Days before the attack, traders appeared to anticipate the events to come,” the professors wrote, citing short interest in the MSCI Israel Exchange Traded Fund (ETF) that “suddenly, and significantly, spiked” on 2 October based on data from the Financial Industry Regulatory Authority (FINRA). “And just before the attack, short selling of Israeli securities on the Tel Aviv Stock Exchange (TASE) increased dramatically,” they added in the 66-page report, reports Reuters. [caption id=“attachment_13467002” align=“alignnone” width=“640”] A Tel Aviv Stock Exchange sign is seen at the bourse in Tel Aviv. Some traders may have profited off the attack by betting against the Israeli stock market. File photo/Reuters[/caption] The paper looked at the Israel Exchange Traded Fund (ETF), a common way for people to make investments in Israel, which on any regular day has around 2,000 shares shorted. On 2 October that number shot up to over 227,000 shares, reports CBS News. According to Mitts, “That’s extremely unusual”. It was also profitable: the shares sold short for one Israeli company alone yielded a profit of nearly $900,000. “For one Israeli company alone, 4.43 million new shares sold short over the September 14 to October 5 period yielded profits (or avoided losses) of $740 million on that additional short selling,” the paper says. The study referred to Bank Leumi, a TASE-listed company, as an example. The researchers say that 4.43 million of the bank’s shares were sold short between 14 September and 5 October. The trades yielded over 30 million Israeli shekels, or about $7.8 million based on the exchange rate in early October before the attack. The bets against the value of the MSCI Israel ETF in the days leading to the terror strikes “far exceeded” the short-selling activity that took place during the COVID-19 pandemic, Israel’s judicial reforms that led to massive protests, the 2014 Israel-Gaza war and the 2008 global financial crisis, the study found. “Our findings suggest that traders informed about the coming attacks profited from these tragic events,” wrote the authors. [caption id=“attachment_13467022” align=“alignnone” width=“640”] A man walks past a branch of Bank Leumi in Tel Aviv. Researchers found that between 14 September and 5 October, there were 4.4 million new shares sold short in Bank Leumi, one of Israel’s largest banks. File photo/Reuters[/caption] A similar trend was noticed on 3 April, a few days before the Jewish holiday of Passover. The research paper links this to a report in the Israeli media that Hamas had initially planned the attack on the eve of the Passover. “It’s almost the same magnitude. What are the odds?” asks Mitts. According to the professor, it appears to have “been the product of a single trader” based on the data. “We think it’s virtually impossible this happened by chance,” Mitts told CBS News. Also read: Jobless rate spiking, GDP shrinking: Israel’s economic crisis amid Hamas war Who made the profits? It would be “exceedingly difficult” to find out who was behind the trades and who profited from them, according to Mitts. He said that he was “pretty pessimistic” that whoever was betting against the Israeli economy would be found. A report in The Times of Israel concluded that Hamas could have profited off the attacks. [caption id=“attachment_13467122” align=“alignnone” width=“640”] Members of al-Qassam Brigades, the armed wing of the Hamas, display their weapons during a military parade in Gaza City on 14 December 2014. The study says that it is too early to predict if Hamas or any other organisation was involved in the trade. File photo/Reuters[/caption] However, the authors have clarified that they do not know the location of parties making trades and whether the traders were connected to any particular financial firms, government entities or terrorist organisations. They also urge caution before drawing such conclusions, according to a CNN report. “Linking it back to Hamas is very speculative and we’re not suggesting this,” Mitts was quoted as saying by the publication. He added that there were a wide range of possibilities including the potential that someone “overheard something” and acted on it. Charles Whitehead, a professor at Cornell Law School, called the study “interesting but preliminary.” However, he told CNN that the subject needs “close scrutiny” as a way to anticipate future events and “cut off the ability of terrorists and others, with inside information, from profiting on terrorist activity”. Also read: Profiting Off the War: How defence stocks are rocketing amid Israel-Hamas conflict What is Israel saying? The Israel Securities Authority, “The matter is known to the authority and is under investigation by all the relevant parties.” A spokeswoman for the securities regulator did not elaborate, and Israeli police did not immediately comment, reports Reuters. With inputs from agencies