SME, Crisis and Geopolitical Risk: Lessons from COVID-19 and War

This paper explores how geopolitical risk impacts small and medium-sized enterprises (SMEs), focusing on the COVID-19 pandemic and the Russia–Ukraine war. Using daily return data from the ECPI Italy SME Equity and Shenzhen SME Composite indexes, as well as the Global Geopolitical Risk Index, this study employs a Dynamic Conditional Correlation GARCH model to analyze how correlations change over time. The results show that Asian SMEs, represented by China, exhibit higher short-term volatility but stronger long-term resilience than their European counterparts. Notably, Asian markets react consistently across crises, while European markets distinguish between different events. These findings provide important insights for policymakers, suggesting the need for standardized crisis response frameworks and emphasizing short-term mitigation efforts. This study adds to SME theory by highlighting the complex relationship between geopolitical shocks and SME performance, with important implications for risk management and regulatory strategies in emerging economies.