Does the Cochrane-Piazzesi Factor Predict? An International Resampling Perspective

Abstract

We employ the state-of-the-art resampling procedure designed by Crump and Gospodinov (2019) to assess the predictive ability of the benchmark Cochrane-Piazzesi return-predicting factor in four important Treasury markets. We find that i) it accounts for excess returns better than the slope; ii) it has a better economic performance than the slope factor and the unconditional “long-always” strategy; iii) its outperformance is not due to overfitting; and iv) it retains its greater predictive abilities out of sample.