Scenario planning of factors affecting market capitalization of Tehran stock exchange using system dynamics approach

One of the economic development challenges in recent years is financing problems. In the present circumstance, where banks and financing institutions face many problems in financing businesses and projects, investigating the stock market development factors seems to be necessary. Present research aims at simulating scenarios in the context of factors affecting stock market development in the comparison with banking system. The system dynamics approach has been used in order to develop a dynamic model to simulate the effect of GDP growth rate and interest rate on market capitalization (quantitative scenarios), and also investigate the effect of market efficiency, investing culture and knowledge, and market manipulation (structural scenarios). Using Vensim DSS to simulate the scenarios, the validity of the model has been tested under systemic and statistical tests. The results show that increasing GDP growth rate, increase the market capitalization over research time horizon, while increasing interest rate results in the decrease of stock market capitalization. +3% and -3% change in GDP growth rate results in +13.6% and -12.2% change in market capitalization. +10% and -10% change in interest rate results in -27% and +44% in market capitalization. Changing the endogenous variables by 10% in the demanded way will 80% increase the market capitalization in the comparison with base run simulation values. The results of sensitivity analysis shows that market capitalization is more sensitive to changes of endogenous variables than macroeconomic variables.