This study examines the effect of economic policy uncertainty on stock market return and risk for the group of seven countries. We contribute to the existing literature by addressing the question of how stock market return and volatility respond to economic policy uncertainty in differential market conditions viz., bull and bear market. Taking monthly data of G7 countries from 1998 to 2018, we examine the relationship using Markov switching VAR models for each country and all the countries in a panel data framework in two different market conditions. Additionally, while regime switching VAR models are used in panel data, we address country specific heterogeneity and cross sectional dependence due to market integration. Our estimation results suggest that an increase in EPU increases the market volatility and reduce return only when the time period is contemporaneous. However, it increases the return in the future time period as the investor demands a higher return as an uncertainty premium, leading to a decrease in volatility. The estimation results suggest that the impact of EPU is significant in the bear market and has an insignificant impact in the bull market. Further, we extend our analysis to a three regime MSVAR model for separate and panel of countries. The estimation of the three regime model strengthens our claim that we argued based on the two regime MSVAR model.