Ahead of the massacre of 1,200 Israelis on October 7, informed traders on Wall Street and other capital markets were likely “anticipating and profiting from the Hamas attack,” evidence in a new report published in the SSRN journal indicates. 

“On October 7, 2023, Hamas launched a devastating terrorist attack on Israel, a tragedy with consequences we are only beginning to comprehend. But days before the attack, traders appeared to anticipate the events to come,” the report’s authors, a New York University School of Law professor, Robert Jackson Jr., and a Columbia Law School professor, Joshua Mitts, write. 

The report details several key findings and evidence suggesting that “traders informed about the coming attacks profited from these tragic events.” The report documents enormous spikes in short selling, which is a trading strategy of selling borrowed shares at market price with the belief or hope that the prices will decline and can be bought later at a lower cost. 

“We document a significant spike in short selling in the principal Israeli-company ETF days before the October 7 Hamas attack,” the report says, noting that “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.”

The report also found that just before the Hamas attacks, “short selling of Israeli securities on the Tel Aviv Stock Exchange increased dramatically.” 

“It is extremely unlikely that the volume of short selling on October 2 occurred by random chance,” the report notes. The authors add that while many investigations into the October attacks have focused on cryptocurrency, there has been “little attention” given to “trading in securities markets” in advance of the attacks. 

Noting a gap in “ in U.S. and international enforcement of legal prohibition” related to this type of trading, the authors also propose policy ideas for lawmakers “concerned about the prospect of informed trading on coming terrorist attacks.” 

Graphs in the report showing short selling each day display a spike of more than 200,000 trades on October 2, which is so high “that it is difficult to see the other values in the chart, which rarely exceed the single digit thousands.”

The report also references The Times of Israel, which reported that Hamas originally planned to attack on the eve of Passover earlier this year on April 5. The days ahead of those planned attacks, which were canceled by Hamas following Israeli military intelligence catching wind of them, also saw similar peaks in short selling, the report notes. 

“The short ratio peaked at 94% on April 3, 2023, which was higher than every other day over the period March 1 to April 3, 2023,” the report notes. “Taken together, this evidence strengthens the interpretation that the trading observed in October and April was related to the Hamas attack rather than random noise.”