The paper examines the effect of stock market volatility on small and medium scale enterprises' (SMEs) returns during the two financial years 2005–06 and 2006–07. It has been examined whether there exist Any systematic risk in the returns of those small and medium scale enterprises which are listed in the Bombay Stock Exchange (BSE). An effort has also been made to capture the slope of daily returns during each month so as also to know the rate of volatility among these. The empirical results show that there has been very low effect of stock market volatility on the returns of small and medium scale enterprises. The indicator parameter i.e. beta has found low existence among the returns irrespective of the high rate of volatility shown by the common stock returns of small and medium scale enterprises.
