Seasonality as an unobservable component: the case of Kuwait stock market

This paper uses structural time series methodology to investigate seasonality factors for the returns of Kuwait stock market and its various sectors. The results indicate the existence of positive pre-summer seasonal factors for the market and most of the sectors, which can be explained by the summer holiday effect. Significant seasonal factors are found to be stochastic rather than deterministic, which cannot be handled by traditional time series models that assume deterministic seasonality.