A paper has been published revealing that short sellers who bet on stock price declines in the Israeli and U.S. stock markets just before the Palestinian armed group Hamas's airstrike on Israel made profits worth around 100 billion won.
According to a research report titled "Trading on Terror," posted on the academic paper pre-release site SSRN on the 4th (local time), a large-scale short selling through over-the-counter trading occurred on October 2, five days before Hamas's surprise attack, in the Morgan Stanley Capital International (MSCI) Israel Exchange-Traded Fund (ETF).
Robert Jackson Jr., a professor at New York University School of Law, and Joshua Mitts, a professor at Columbia Law School, who authored the report, evaluated that "the scale of short selling on that day was unprecedented, surpassing those that occurred during the COVID-19 pandemic, the 2014 Israel-Gaza conflict, and the 2008 global financial crisis."
These groups reportedly bet on the stock price decline of Israel's largest bank Leumi, listed on the Tel Aviv Stock Exchange, from September 15 to October 5, earning approximately $7.5 million (4.4 million shares, about 9.8 billion won) in profits.
The targeted stocks by the short sellers included not only Leumi but also Hapoalim Bank, Lemi Bank, Discount Bank, Mizrahi-Tefahot Bank, as well as Israeli pharmaceutical company Teva Pharmaceutical and software firm NICE.
The report explained that the research results "suggest that these groups had prior knowledge of Hamas's attack and profited from this tragic event." Professor Mitts told The Telegraph, "Based on current evidence, it is possible to estimate that the profits exceed $100 million (about 130 billion won)."
In an interview with CNN, Professor Mitts said, "We are only seeing the tip of the iceberg; there is likely a greater number of undisclosed covert short selling transactions," adding, "Regulatory authorities have much to investigate." In this regard, a spokesperson for the Tel Aviv Stock Exchange stated, "Authorities are investigating all relevant parties."
The report also revealed that there were some abnormal trades on U.S. stock exchanges before Hamas's attack. Although short selling of Israeli companies' stocks did not increase overall on U.S. exchanges, the report explained that there was a sharp and unusual rise in risky short-term options trading on these companies immediately before Hamas's attack.
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