The large positive returns observed for firms in the Australian market in July and January are primarily caused by market overreaction.

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Monthly seasonality in share returns was first documented by Rozeff and Kinney (1976)in the USA.Their study found that share returns appeared to be abnormally high in January.Subsequent work confirmed these results,and monthly seasonals have since been documented in other stock exchanges.In Australia,share returns are at their highest in both January and July and their lowest in June (Brown,Keim,Kleidon and Marsh 1983,Brailsford and Easton 1991).In the stock market,research has shown that monthly seasonality varies cross-sectionally and is linked to the size of the firm.

The Large Positive Returns Observed for Firms in the Australian