Someone's War 'The Big Short'... "Short Selling Volume Surges Before Hamas Surprise Attack"

US Law School Professor: "Abnormal Surge in Short Selling"

Before the surprise attack by the Palestinian armed group Hamas on Israel, short selling in Israeli exchange-traded funds (ETFs) surged significantly. It is claimed that some investors had prior knowledge of Hamas's planned attack on Israel on October 7 and invested accordingly.

On the 4th (local time), according to CNN, Robert Jackson Jr., a former U.S. Securities and Exchange Commission (SEC) commissioner and professor at New York University, and Joshua Mitts, a professor at Columbia Law School, released a paper titled "Trading on Terror?" containing these findings.

A video released on November 24 (local time) by the Israel Defense Forces (IDF) showing an attack on targets of the Lebanese militant group Hezbollah. Smoke and flames are rising from a building following the Israeli airstrike. [Photo by Reuters / Yonhap News]

In this study, the two professors pointed out that short selling of popular funds related to Israel surged "significantly" and "unusually" starting from October 2, five days before Hamas's surprise attack on Israel.

The paper confirmed that short selling in major Israeli corporate ETFs sharply increased days before Hamas's invasion of Israel on October 7. ETFs that track specific indices can be bought and sold like stocks.

In the case of one Israeli company, approximately 4.43 million shares were short sold from September 14 until October 5, two days before the invasion, generating about $7.5 million (9.8 billion KRW) in profits.

While short selling of Israeli companies did not increase overall on U.S. exchanges, risky short-term options trading surged sharply and unusually right before and immediately after the attack.

This level surpassed short selling observed during various crises such as the 2014 Israel-Gaza conflict known as the "50-Day War" and the COVID-19 pandemic period.

The two professors noted, "A few days before the attack, traders appeared to anticipate what was going to happen," adding, "Our findings suggest that the market was informed about the upcoming attack but profited from this tragic event."

Vehicle destroyed in Hamas raid
Photo by UPI/ Yonhap News

Jonathan Macey, a professor at Yale Law School, told CNN, "This paper is shocking," and said, "There is strong evidence that well-informed traders anticipated Hamas's attack and profited from it." He added, "Regulators seem to lack the capability to identify those responsible for these trades, which is unfortunate."

According to the report, some abnormal trading also occurred on U.S. securities exchanges before Hamas's attack. The report stated, "While short selling of Israeli company stocks did not increase overall on U.S. exchanges, a sharp and unusual surge in risky short-term options trading on these companies was confirmed immediately before Hamas's attack."

Israeli woman evacuating with child during Hamas rocket attack [Photo by AP/Yonhap News]

The research team emphasized that their findings are still preliminary and have not undergone peer review, and they cannot link specific traders to these transactions. Regarding this, Israeli regulatory authorities told foreign media, "The authorities are aware of this issue and are investigating the parties involved." Neither the Israeli Securities Authority nor the U.S. Securities and Exchange Commission responded to CNN's requests for comment.

Meanwhile, recent reports have indicated that while the Israeli military is engaged in war in the Palestinian Gaza Strip, northern Israel, exposed to threats from the Lebanese armed group Hezbollah, is turning into a no-man's land.

This content was produced with the assistance of AI translation services.