Update December 5: "Update: "Tel Aviv bourse says no unusual trading ahead of Oct 7 Hamas attack"
Original post:
From Reuters via U.S. News & World Report, December 4:
Israel investigates possible trading knowledge ahead of Oct 7 Hamas attack
Israeli authorities are investigating claims by U.S. researchers that
some investors may have known in advance of a Hamas plan to attack
Israel on Oct. 7 and used that information to profit from Israeli
securities.
Research by law professors Robert
Jackson Jr from New York University and Joshua Mitts of Columbia
University found significant short-selling of shares leading up to the
attacks, which triggered a war nearly two months old.
"Days
before the attack, traders appeared to anticipate the events to come,"
they wrote, citing short interest in the MSCI Israel Exchange Traded
Fund (ETF) that "suddenly, and significantly, spiked" on Oct. 2 based on
data from the Financial Industry Regulatory Authority (FINRA)....
....MUCH MORE
Although Reuters doesn't link to the paper, is is available at the SSRN download site:
Trading on Terror? 67 Pages Posted: 4 Dec 2023
Robert J. Jackson, Jr.
New York University School of Law
Joshua Mitts
Columbia Law School
Date Written: December 3, 2023
Abstract
Recent scholarship shows that informed traders increasingly disguise trades in economically linked securities such as exchange-traded funds (ETFs). Linking that work to longstanding literature on financial markets’ reactions to military conflict, we document a significant spike in short selling in the principal Israeli-company ETF days before the October 7 Hamas attack. The short selling that day far exceeded the short selling that occurred during numerous other periods of crisis, including the recession following the financial crisis, the 2014 Israel-Gaza war, and the COVID-19 pandemic. Similarly, we identify increases in short selling before the attack in dozens of Israeli companies traded in Tel Aviv. For one Israeli company alone, 4.43 million new shares sold short over the September 14 to October 5 period yielded profits (or avoided losses) of 3.2 billion NIS on that additional short selling. Although we see no aggregate increase in shorting of Israeli companies on U.S. exchanges, we do identify a sharp and unusual increase, just before the attacks, in trading in risky short-dated options on these companies expiring just after the attacks. We identify similar patterns in the Israeli ETF at times when it was reported that Hamas was planning to execute a similar attack as in October. Our findings suggest that traders informed about the coming attacks profited from these tragic events, and consistent with prior literature we show that trading of this kind occurs in gaps in U.S. and international enforcement of legal prohibitions on informed trading. We contribute to the growing literature on trading related to geopolitical events and offer suggestions for policymakers concerned about profitable trading on the basis of information about coming military conflict.
Keywords: Law, finance, trading, terrorism, securities, financing
JEL Classification: G14, K22
SSRN
