Predictive Performance and Bias - Evidence from Natural Gas Markets
Posted: 16 Sep 2011 Last revised: 23 Sep 2014
Date Written: December 28, 2011
This paper sheds light on the differences and similarities in natural gas trading at the National Balancing Point in the UK and the Henry Hub located in the US. For this, we analyze traders' expectations and implement a mechanical forecasting model that allows traders to predict future spot prices. Based on this, we compute the deviations between expected and realized spot prices and analyze possible reasons and dependencies with other market variables. Overall, the mechanical predictor performs well, but a small forecast error remains which can not be characterized by the explanatory variables included.
Keywords: Natural Gas, Commodity Pricing, Unbiasedness, Kalman Filter, Risk Premia
JEL Classification: C1, C5, G1, Q4
Suggested Citation: Suggested Citation