Israeli authorities are currently investigating allegations that some investors had foreknowledge of a planned Hamas attack on Israel on October 7 and exploited this information for financial gain. This inquiry follows research by U.S. law professors Robert Jackson Jr. of New York University and Joshua Mitts of Columbia University, which highlighted unusual short-selling activities in Israeli securities prior to the attacks.
The researchers observed a significant spike in short interest in the MSCI Israel Exchange Traded Fund (ETF) on October 2, just days before the attack, as reported by the Financial Industry Regulatory Authority (FINRA). Additionally, they noted a dramatic increase in short selling of Israeli securities on the Tel Aviv Stock Exchange (TASE) right before the attack.
The Israel Securities Authority, responding to these findings, confirmed that the matter is under active investigation. However, details of the investigation remain undisclosed, with neither the securities regulator nor the Israeli police providing immediate comments.
The study by Jackson and Mitts also compared the short-selling activity to other periods of crisis, including the 2008 financial crisis, the 2014 Israel-Gaza war, and the COVID-19 pandemic. They found that the short-selling prior to October 7 exceeded those during these other crises. For instance, they cited that new shares sold short of Leumi, Israel’s largest bank, from September 14 to October 5, resulted in profits of approximately 3.2 billion shekels ($862 million).
The professors also pointed out a similar pattern of trading activity in early April, around the time initial reports of Hamas planning an attack on Israel emerged. They observed a peak in short volume in the MSCI Israel ETF that was significantly higher than on other days leading up to April 3.
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