We study the effect of innovations in heterogeneous beliefs on stock prices. Specifically, we analyze price reactions to earnings announcements and find that the increases in heterogeneous beliefs are associated with higher abnormal returns. The result is robust after controlling for commonly known alternative explanations. Our findings directly support Miller＇s hypothesis （1977） that short-sale constraints and heterogeneous beliefs jointly lead to upward biases in stock prices. This paper complements existing studies which document a negative correlation between the esc ante level of heterogeneous beliefs and future stock returns.