The importance of distinguishing between precious and industrial metals when investing in mining stocks

Abstract

We investigate the sensitivity of world mining stocks to precious and industrial metals by adding a metal factor to the CAPM and Fama-French models. We find that metals are fundamental in explaining mining stocks' returns and more influential than Fama-French factors. We also find that metals are more significant for stocks of precious than industrial metals and the effect is stronger for firms domiciled in developed markets. The market factor is more relevant for stocks of industrial metals. Our results suggest that investors should treat mining stocks differently and need to distinguish between precious and industrial metals.