Israeli stock traders profited $1.1 billion from deals that preceded the Gaza war

Two researchers from New York University and Columbia Law School found a sharp rise in short sales of Israeli stocks in the weeks preceding the “Al-Aqsa Flood” operation on October 7, according to a report published in the Hebrew newspaper “Globus” published in Tel Aviv on Monday.

The study, conducted by researchers at the two American universities, claims that some Israeli stock traders on the New York and Tel Aviv stock exchanges obtained information about the Hamas attack on Israel on October 7 before it occurred, and they carried out short selling operations on the American and Israeli stock exchanges, hoping for a decrease. Stock prices after the attack and profit from the operation.

According to the report, researchers found Robert J. Jackson Jr. of New York University School of Law and Professor Joshua Metz of Columbia Law School noted a sharp and significant spike in short sales in ETFs tracking Israeli companies in the days leading up to the attack.

According to the results, the short sales in question were larger than those that occurred in the days preceding previous rounds of fighting between Israel and Hamas in the Gaza Strip and before the outbreak of the Covid-19 pandemic.

The researchers also report that they identified short and large sales before the attack in dozens of companies traded on the Tel Aviv Stock Exchange.

The study, excerpts of which were published by Globes, shows that between September 14 and October 5, a short position worth 4.43 million shares was built in the Israeli Bank Leumi. After the Hamas attack, traders reaped profits from these deals amounting to 3.2 billion shekels, equivalent to 1.18 billion dollars.

The researchers write that they did not see a cumulative rise in short positions on Israeli stocks (affiliated with Israeli companies) traded on US exchanges, but they did find a sharp and unusual rise in options trading on these stocks with expiration dates shortly after the “Al-Aqsa Flood” operation in October 7.

According to Globes, the researchers also found similar patterns in trading in Israeli ETFs when there was talk in the past that Hamas was planning an attack similar to the one it carried out two months ago. Their conclusion was that there were traders who knew of the impending attack and benefited from Operation Al-Aqsa Flood.

Short selling (or short selling) is a trading strategy that allows an investor to sell and receive financial compensation, but does not actually own the asset being sold. In this process, the investor sells a financial asset (such as a stock) while borrowing it from another person or from a broker. The investor here expects that the price of the financial asset sold will decrease, and then he can buy it at a lower price and return it to the person from whom he borrowed it.

In capital markets, an investor sells shares he does not own, anticipating that the share price will fall. If his predictions come true, the investor can buy the stock at a lower price and return it to the person he initially sold it to, making a profit from the difference in prices.