Developing strategic policies which could protect the stock market from wild fluctuations and bubbles is a challenging area in financial management. When the price index rises fast, the chances of its collapsing increase. The collapsing of bubbles leads to large negative returns. Researchers have argued the stock price behavior does not always follow the economics fundamentals. There are nonlinear and complex factors affecting changes in the stock prices. System dynamics as a way of analyzing complexity and nonlinearity could give us a new perspective to analyze the dynamic behavior of stock price index. This paper develops a SD model based on two significant and fundamental theories in finance, Behavioral and Classical theories, to examine main causes of growth and collapse of stock market index. The impact of macro socio-economical environment on stock market fluctuations is also discussed. The predictions of the model are validated based on cross-sectional data from different countries. Keywords: System Dynamics, Stock Exchange, Speculative Bubble, Financial Management, Behavioral Finance.