FUTURE RESEARCH. A prohibition against short-selling on U.S. exchanges expired Thursday. Friday morning, the Dow Industrial average dropped at opening to about 8,000, then rallied, and stayed above 8,000 the rest of the day. Some observers were guessing that standing buy orders with execute levels at 8,000 kicked in. Another possibility is that traders covered their short positions once prices fell that far. One weblog anticipates that possibility. I haven't seen any other commentary on the days events. (It may be a while before we joke about the desk drawers labeled "up" and "down" that financial reporters rummage in and fish out a slip of paper labeled "short covering" or "better earnings" or "profit taking" to explain that day's movements.)

There are research papers to be written on the effect of the short-selling ban on market movements. I'd be surprised if there won't be at least one that will suggest the ban on short-selling made the price declines more drastic.