Assessing the influence of factors affecting stock market: an ISM approach
Authors: Meher Premananda , Mishra Rohita Kumar 
Published: February 2025

Purpose

The purpose of this study is to identify and analyze the key factors influencing stock market movements, using a multifactor hierarchical approach. By applying interpretive structural modeling (ISM) and Matrice d’Impacts Croisés Multiplication Appliquée à un Classement (MICMAC) techniques, this study aims to uncover the interrelationships between these factors and provide a clearer understanding of their role in shaping market dynamics, with practical implications for investors and policymakers.

Design/methodology/approach

This study uses ISM and MICMAC analysis to explore the hierarchical relationships among key factors driving stock market movements. A panel of 25 financial market experts was used to develop the structural self-interaction matrix, and ISM was applied to structure the relationships between these factors. MICMAC analysis categorized the factors based on their driving power and dependence. The combined use of ISM and MICMAC provides a structured and quantitative approach to understanding the complexities of stock market dynamics.

Findings

The research identifies behavioral biases, corporate governance, interest rates, global events, investor sentiment and market volatility as pivotal factors influencing stock market movements. The hierarchical ISM model reveals that behavioral biases strongly drive investor sentiment, while global events and interest rates heavily impact market volatility. The MICMAC analysis categorizes these variables into autonomous, dependent and independent factors, providing a nuanced understanding of their influence on stock prices.

Research limitations/implications

This study is limited by its reliance on expert judgments, which may introduce bias, and the sample size of 25 experts may not fully capture the diversity of financial market perspectives. In addition, the scope of the study is limited to generalized stock market factors, excluding regional or sector-specific analyses. These limitations affect the generalizability of the findings.

Practical implications

The findings of this research offer practical implications for investors, financial analysts and portfolio managers seeking to navigate the complexities of stock market behavior. By identifying key factors such as behavioral biases, corporate governance, currency fluctuations and regulatory changes, stakeholders can gain a deeper understanding of the dynamics driving stock prices. This structured approach can inform investment strategies, risk management practices and decision-making processes, enabling stakeholders to adapt to market fluctuations and make informed choices that align with their financial goals.

Social implications

This study’s exploration of factors influencing stock market movements carries social implications that extend beyond financial markets. Understanding how global events, political stability and regulatory changes impact stock prices can shed light on the broader socio-economic landscape. By recognizing the interplay between these factors and their influence on investment decisions, policymakers, regulators and society at large can gain insights into the interconnectedness of financial markets with social and political dynamics. This awareness can inform policy decisions, economic strategies and initiatives aimed at fostering market stability and sustainable economic growth.

Originality/value

By using ISM and expert judgment, this research developed a comprehensive model that unveils the key factors influencing stock market movements. This model can potentially be used to inform investment decision-making and improve investment strategies, providing a structured approach for stakeholders to analyze and adapt to the complexities of stock market behavior.