Investigating the impact of volatility spillover among various markets has been the subject matter of numerous research. This study investigates the dynamic relationship between the Bombay Stock Exchange index (SENSEX) and the small and medium enterprises (SME) stock index (BSE SME) in India. The study uses univariate autoregressive conditional heteroskedasticity (ARCH)/generalised autoregressive conditional heteroskedasticity (GARCH) models to model the time-varying volatility of the BSE SME market and multivariate BEKK-GARCH analysis to model the volatility of the SENSEX and BSE SME Index considering the existence of some linkages between them. The study is based on the daily stock indices data ranging from 16 August 2012 to 31 March 2021. Furthermore, the study reveals statistically significant internal volatility spillovers in the SME stock market and the cross-volatility transmission between the two indices. It affirms statistically significant volatility and return spillover between the main market index, SENSEX and SME index, BSE SME. The findings of this research have important implications for the diversification process. It provides crucial signals to investors, portfolio managers and policymakers, especially when there has been much impetus and promotion from the Indian government and emerging foreign investments in India’s SMEs in recent years.
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