A Hybrid System Dynamics-Fuzzy Logic Model for Simulating Institutional Determinants of Capital Market Development

Rasti, Fatemeh; Sadeghi, Mohammad Reza; Soleimani Sarvestani, Mohammad Hosein; Akhlaghpour, Saeed

doi:10.22059/ijms.2026.413586.678543

A Hybrid System Dynamics-Fuzzy Logic Model for Simulating Institutional Determinants of Capital Market Development

Articles in Press

Document Type : Research Paper

Authors

Fatemeh Rasti ¹

Mohammad Reza Sadeghi ²

Mohammad Hosein Soleimani Sarvestani ³

Saeed Akhlaghpour ⁴

¹ Department of Management, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran.

² Faculty of Management, University of Tehran, Tehran, Iran

³ Ph.D. in production and operation management, Faculty of Management and Accounting, Farabi College, University of Tehran, Tehran, Iran.

⁴ Ph.D. in systems management, Faculty of Economics, Management and Social Sciences, Shiraz University, Shiraz, Iran.

10.22059/ijms.2026.413586.678543

Abstract

This study simulates the complex interactions among institutional determinants influencing capital market development by integrating fuzzy inference logic with a system dynamics (SD) framework. This hybrid approach captures the non-linear feedback mechanisms and linguistic uncertainties inherent in institutional variables. The model’s structural and behavioral validity was rigorously tested using boundary adequacy, extreme-condition tests, and historical fit analysis (2013–2023), with simulations extending to a 2031 horizon. To address the impact of institutional shifts, the dynamics of market capitalization were evaluated under multiple policy scenarios including investor legal protection, market manipulation, and financial education benchmarked against a baseline simulation. Findings reveal that while individual institutional improvements are beneficial, the simultaneous enhancement of financial education acts as a critical catalyst, significantly amplifying market capitalization and reducing response delays in market confidence and inclusion. These results provide a robust roadmap for policy-making, emphasizing that institutional reforms are most effective when implemented as a synchronized policy mix.

Keywords

Capital market development

Institutional determinants

System Dynamics

Fuzzy inference logic

Market manipulation

Subjects