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We examine the effects of market making and intermittent trading on estimates of stock price volatility. When observed price changes are correctly tied to a stock's true price dynamics, it is found that nontrading per se causes a loss of efficiency but no bias in traditional volatility estimates. Nontrading induces substantial inefficiency in the extreme value estimator of volatility which it biases downward. Market making's effects add to the nontrading-induced inefficiency in the traditional estimator, while information trading imparts a downward bias, and liquidity trading a potentially removable upward bias, In that estimator.Address proofs and reprint order form to

Although the Contingent Claims Analysis model has become the premier theory of how value is allocated among claimants on firms, its empirical validity remains an open question. In addition to being of academic interest, a test of the model would have significant practical implications. If it can be established that the model predicts actual market prices, then the model can be used to price new and untraded claims, to infer firm values from prices of traded claims like equity and to price covenants separately. In this paper evidence is presented on how well a model which makes the usual assumptions in the literature does in predicting market prices for claims in standard capital structures. The results suggest that the usual assumption list requires modification before it can serve as a basis for valuing corporate claims.