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

• This study re-examines the relationship between U.S. stock market volatility and EPU using new model. • The EPU has a threshold effect that is time-varying. • This new model can significantly improve the predictive performance in a statistical view. 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.