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Stock market volatility and economic policy uncertainty: New insight into a dynamic threshold mixed-frequency model

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  • Zeng, Qing
  • Tang, Yusui
  • Yang, Hua
  • Zhang, Xi

Abstract

This study re-examines the relationship between U.S. stock market volatility and economic policy uncertainty (EPU) using the mixed-frequency dynamic threshold model. The empirical results exhibit several findings. The EPU has a threshold effect that is time-varying. Moreover, combining the dynamic threshold with the Markov-regime Mix-frequency model (MS-MIDAS), we find that this new model can significantly improve the predictive performance in a statistical view compared to other competing models (including the benchmark model). Our findings can provide new insight into volatility forecasting.

Suggested Citation

  • Zeng, Qing & Tang, Yusui & Yang, Hua & Zhang, Xi, 2024. "Stock market volatility and economic policy uncertainty: New insight into a dynamic threshold mixed-frequency model," Finance Research Letters, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323010863
    DOI: 10.1016/j.frl.2023.104714
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