Firms with no debt show stock price volatility, challenging financial norms.
The article shows that even companies without debt can still experience the leverage effect, where stock prices move inversely to volatility. This effect was first noticed by Black and was thought to be due to financial or operating leverage. Surprisingly, firms with no debt and low operating leverage show a stronger leverage effect than those with high operating leverage. This challenges the traditional understanding of how leverage impacts stock prices and volatility.