Information on economic policy uncertainty does matter in predicting the US equity premium,
especially when accounting for structural instabilities and omitted nonlinearities in
their relationship, via a quantile predictive regression approach over the monthly period
1900:1–2014:2. Unlike as suggested by a linear mean-based predictive model, the extended
quantile regression model with the incorporation of the EPU proxy, enhances significantly
the out-of-sample stock return predictability. This is observed especially when the market
is neutral, exhibits a slide or mildly upward trending behavior, yet not when the market
appears to turn highly bullish.