Zero-Coupon Yields and the Cross-Section of Bond Prices

I estimate a dynamic term-structure model with time-varying risk premia on a panel of Treasury coupon bonds, without relying on an interpolated zero-coupon yield curve or a selection of maturities. The model allows me to incorporate prices and realized returns of coupon bonds into the estimation and testing of the model. I perform specification tests that are infeasible using zero-coupon yields: I quantify the deviations between the prices of bonds older and younger than 15 years during the financial crisis. I show that prices of risk estimated from vector autoregressions of factors do not forecast returns of actual Treasury bonds