(News Bulletin 247) – A study written by two American academics shows that investors made an unusually high number of bets against Israeli securities a few weeks and even a few days before the date of the attack. According to Reuters, Israeli authorities are investigating.

Did unscrupulous investors get wind of the Hamas attacks against Israel on October 7 and try to make a profit on the market? This is what a study published by two researchers in the United States and spotted by several media outlets, including Haaretz, Les Echos, CNN and the Wall Street Journal, suggests.

This research paper has not yet been evaluated by its peers, specifies CNN, and is therefore not published in a scientific journal.

This 66-page study is entitled “trading on terror” and written by Robert J. Jackon, professor at New York University, and David J. Greenwald, of Columbia University.

The two academics notably noticed unusual short-selling activity (downward stock market bets) on Israeli stocks over a period from September 14 to October 5, just before the Hamas attack. “Our results suggest that traders informed about the upcoming attacks took advantage of these tragic events,” they explain.

>> Access our exclusive graphic analyses, and gain insight into the Trading Portfolio

Suspicious movements from April

As a reminder, short selling consists of betting on the decline of a stock. The investor will sell a security and then buy it back at a lower price, thus making a profit if the price of the security has actually fallen in the meantime. To be able to sell this security without holding it, the investor borrows it from another market operator via the repurchase agreement (repo) market.

In their research paper, the two academics note more specifically that short sales positions on the MSCI Israel Exchange Traded Fund “suddenly and suddenly jumped” on October 2, five days before the attack. SO. During this day of October 2, short sales represented almost 100% of trading volumes on this American ETF which reproduces the performances of many Israeli companies. These volumes represented around 200,000 ETF shares compared to barely a few thousand the previous days.

The authors emphasize having detected a similar movement on the Israeli ETF on April 3, 2023, a day during which short sales positions represented 250,000 ETF shares compared to a few thousand again on the days preceding and following this day. However, the authors of the study explain, the Times of Israel reported that Hamas had initially planned to launch its attack not on October 7 but on April 5.

“These elements reinforce the interpretation according to which the exchanges observed in October and April were linked to the Hamas attack rather than to random noise,” explain the authors of the study.

Beyond this ETF, the authors also note that short sales positions on companies on the Tel Aviv Stock Exchange increased sharply between the beginning of August and October 5 (two days before the Hamas attack, therefore) where they reached a peak. The percentage of short sales positions increased from 0% in August to around 15% on October 5, before falling again.

Authorities are investigating

In the case of one of these stocks, Leumi Bank, a main component of the MSCI Israel Exchange Traded Fund ETF, short sales positions increased by 50% between mid-September and October 5, according to the study, or 4.43 million actions. The profit earned would represent 3.2 billion shekels, or around 800 million euros.

Following the publication of these academic studies, the Reuters agency contacted the Tel Aviv Stock Exchange which referred the press agency to the Israel Securities Authority (ISA), that is to say the gendarme of the Israeli Stock Exchange.

“The matter is known to the authority and is being investigated by all parties concerned,” the ISA explained to the agency.

For its part, the Wall Street Journal questioned the Securities and Exchange Commission (SEC), which did not immediately comment.