Seasonality in stock returns: Evidence from an emerging market

This study investigates the nature of seasonality in the monthly stock returns derived from a general index of the Kuwait Stock Exchange. A structural time series model incorporating stochastic dummies reveals that seasonality is present but it is deterministic as implied by the constancy of the monthly seasonal factors over the sample period. Two conventional models that incorporate deterministic seasonal dummies corroborate these results. Moreover, seasonality is found to take the form of a July effect, as opposed to the better-recognized January effect. This finding is attributed to the 'summer holiday effect'.