allowing short selling can reduce bubbles in markets

When you believe a financial instrument is overvalued, you can short sell it and earn money if your belief is proven to be correct. In a financial market, if short selling is not allowed, then only people, who believe the market is going to grow, will enter the market. Once entering the market, the only two ways to make profits is to wait for price increases and to push prices upward. Small traders can do nothing but wait. Large traders have some ability to push prices higher if they are willing to buy more. Therefore, we can say that everyone who enters the financial market, has the same goal, which is to push prices higher. However, up to a certain level, no one believes there is a reason for the market to continue to grow. Then the capable trades want to hold the market prices for a while in order to create time for them to leave the market; then once the large players leave the game, the prices drop sharply as there is no new player entering the market, because no one believe that the prices will increase and they can make any profit if they enter the market. If the market allows short selling, at each point, there are some people who believe the market prices is overvalued entering the market. The market will take these people's beliefs into considerations. Because there are always two different opinions in the market, change in prices is more likely to be more moderate and close to the real value change.