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

Document Type : Original Article

Authors

1 Professor, Department of management, Shiraz Universtity, Shiraz, Iran.

2 Associate Prof, Department of management, Shiraz Universtity, Shiraz, Iran.

3 Ph.D. Candidate in System Management, Shiraz Universtity, Shiraz, Iran

Abstract

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.

Keywords

References

  1. Chermack, T. J. (2005). Studying Scenario Planning: theory, research suggestions and hypothesis. Technological forecasting and social change, 72, 59-73
  2. Demirguc-Kunt, A. & Levine, R. (1999). Bank-Based and Market-Based Financial Systems: Cross-Country Comparisons. Development Research Group. The World Bank, and Finance Department, University of Minnesota
  3. Jackson, M.C. (2003). Systems Thinking: Creative Holism for Managers. John Wiley & Sons.
  4. Khlatbari, F. (2008). Money and banking concepts. Theran, Shabaviz publocation. (In Persian)
  5. Khoshnoud, Z. (2016). Future Path of Financial System Bank-based or Market-based? Monetary and banking research institute, Central bank of Islamic republic of Iran.
  6. Levine, R. (2000). Bank-Based or Market-Based Financial Systems: Which is Better? Finance Department, Carlson School of Management, University of Minnesota.
  7. Linden, K. (2006). A Grounded Approach to the study of complex systems. World futures, 62, 491-497
  8. Mashayekhi. A. et al. (2014). A dynamic modelling for decreasing loss time average in insurance companies. Iranian journal of trade studies. 18(71), 95-117. (In Persian)
  9. Mingers, J, & Rosenhead, J. (2004). Problem structuring methods in action. European Journal of Operational Research: 152, 530–554.
  10. Momenzadeh, M. (2016). Which financial structure help Iran economics "Sena.ir," [Online]. Available: www.sena.ir (In Persian)
  11. Mosleh Shirazi, A. Moosavihaghighi, H. Pashootanizadeh, H. (2018). Simulation of Model Changes by Exchange Rates and Gold Price on the Tehran Stock Exchange Performance with System Dynamics Approach. Journal of Investing Knowledge, 7(25). 17-38. (In Persian)
  12. MousaviHaghighi, M.H. & khalifeh, M. (2015). Simulating the effect of financial leverage model on company value via system dynamics approach (Case study: National Iranian copper industries company). The Quarterly Journal of Asset Management and Financing. V3, I3. 83-104. (In Persian)
  13. Mousavihaghighi, M.H. Khalifeh, M. Safaei, B. Saberi, H. (2016). Simulation of Stock Price through Effective Internal and External Factors via System Dynamics Approach. The Quarterly Journal of Asset Management and Financing. V 4, I4. (In Persian).
  14. Mousavihaghighi, H. Setoode, F. (2013). Simulating the Dynamic behavior of stock in Tehrna Stock Exchange. Journal of Strategic Management Studies, V14. (In Persian).
  15. Ranaei Kordsholi, H. abbasi, A. Pashootanizadeh, H. (2017). Simulate the Model of the Effects of Alternative Assets Volatility on Overall Index of Tehran Stock Exchange and Housing Prices with Using System Dynamics. Financial Engineering and Portfolio Management, 8(33). (In Persian).
  16. Razavi, M. (2016). Planning in large scale systems, Iran banking institute. (In Persian).
  17. Sabzevari, H. (2015). Bank-based versus market-based structure. Financial structure of Iran. Boston university.
  18. Saeedi, A. & Shabzendedar, J. (2011). Modeling Stock Prices Bubbles by System Dynamics for the Car Manufacturing Industry. Journal of Industrial Management Studies. 8(21). 143-165. (In Persian).
  19. Shahabedini, H. (2012). Financial structure. Journal of New on economics, 136. 205-207. (In Persian).
  20. Sterman, J. (2000). Business dynamics: systems thinking and modeling for a complex world. boston, McGraw-Hill.

Files

Share

How to cite

Statistics