Dec 7, 2023 - Economy

Criticism mounts of professors' controversial Hamas short-selling claims

The Tel Aviv Stock Exchange. Photo: Kobi Wolf/Bloomberg via Getty Images

Criticism is growing of a paper released this week, which claimed some investors may have profited on advanced knowledge of Hamas' Oct. 7 attacks on Israel.

Why it matters: The paper — by two law professors, one a former SEC commissioner — received widespread attention.

State of play: A few days in, there's pushback on both the details and the broad claims the two law profs made.

  • Israeli Securities Authority publicly said that it looked into any suspicious trading in Israel ahead of the attacks and found nothing abnormal that required further investigation.
  • Separately, officials from Israel's Tel Aviv Stock Exchange pointed out that the potential profits to some TASE trades that the paper spotlighted were magnified by an order of 100 due to an error related to the denomination of stocks. (Stocks in Israel are priced in agorot — basically, pennies — rather than shekels.)
  • The authors acknowledged the error and revised the paper.

Yes, but: The authors say the core findings — that there were large, unusual short positions taken in the U.S.-listed MSCI Israel ETF ahead of the Hamas attacks on Oct. 7 — were not altered by TASE's concerns.

  • Their key finding is that shorts surged to nearly 100% of all trading volume on Oct. 2, just days ahead of the attack.
  • "The ISA's investigation did not address the short selling in the Israel ETF or short-dated options described in our paper. We hope regulators in Israel and around the world will continue to examine these troubling trading patterns," wrote Joshua Mitts, a Columbia Law School professor and co-author of the paper, to Axios.

Meanwhile: Skeptics are also picking away at the assertion that the large short positions were even anomalous at all.

  • One finance-related Substack pulled data from the same day and found that several other similar national market ETFs had posted short volumes of upwards of 90%. They included Canada, Brazil, Norway, the U.K., Denmark and Egypt.
  • "They failed to look at market-wide dynamics, factor trading, rebalancing, and quant positioning," the authors wrote.

The bottom line: It might not have been Hamas tipsters driving the trade activity — but rather, good old-fashioned month and quarter-end trading dynamics.

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