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

Qing Zeng, Yusui Tang, Hua Yang and Xi Zhang

Finance Research Letters, 2024, vol. 59, issue C

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.

Keywords: Stock market volatility; Economic policy uncertainty; Dynamic threshold model; Out-of-sample performance (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323010863

DOI: 10.1016/j.frl.2023.104714

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