Can economic policy uncertainty help to forecast the volatility: A multifractal perspective

In this study, we investigate whether economic policy uncertainty (EPU) can impact on future volatility based on the multifractal insight. Our estimation results show that the impact of EPU on future volatility is significantly positive, which indicate that EPU can aggravate the future market risk. Moreover, Out-of-sample results tell us that adding EPU as explanatory variable to volatility models can indeed improve the forecasting performance. Furthermore, we also find evidence that the multifractal volatility models can beat the GARCH-class models in forecasting.