Predictive Performance and Bias - Evidence from Natural Gas Markets

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.