Hi I have the following case that is relevant to all stock traders:
An event happens (new product announcement, release of rating of product quality) that impacts a firm's stock price and leads to abnormal returns.
However, this event only impacts the value of the operating business, but not the firm's non-operating business (e.g., excess cash) and its debt. How do you trade different stocks with DIFFERENT amounts of non-operating business and debt (relative to their operating business) when they are all subject to the same event?
Stocks with HIGH debt should go up/down MORE than those with LOW debt, right (leverage effect)?
Please let me know your thoughts/trading behavior.