We measure belief dispersion using customers’ opening and closing positions in the equity options markets. We find a strong and robust negative relation between our measure of belief dispersion and future returns. Results hold for all optionable stocks as well as for a subset of largest and easy toshort-sell stocks. This suggests that models of limited participation cannot fully explain our findings. Instead, our results are most consistent with the mechanism of Ademaz and Basak (2018), whereby high dispersion of beliefs leads to wealth transfers among the investors, causing overreaction to news and a subsequent correction. Tests of stock price reactions around earnings announcements support this mechanism.