Abstract
This study examines the risk–return spillovers and connectedness between the Brazilian stock market and the Brazilian small and medium-sized enterprise (SME) stock market during the COVID-19 pandemic. We employed a VAR-GARCH (1,1) BEKK model, building on previous research, to analyze data from January 2010 to July 2021. Our findings reveal a significant increase in return spillovers from the Brazilian stock market to the SME stock market during the pandemic, indicating a stronger impact of the overall market on smaller enterprises during crises. Conversely, risk spillovers from the SME market to the broader market decreased, suggesting that during periods of high uncertainty, the systematic risk contribution of SMEs to the overall market diminishes. These results offer valuable implications for investors, policymakers, and SME managers, highlighting the need for tailored risk management strategies and supportive policies for SMEs during economic downturns. The originality of this study lies in its specific focus on the Brazilian SME market during the COVID-19 pandemic, utilizing a robust econometric approach to provide nuanced insights into market dynamics.