The paper develops a turnover-decomposition model to extract unexpected trading volumes from trading activities, and uses it as the proxy of investors’ heterogeneous beliefs to explore the explanatory power on stock returns in Chinese stock markets. The results show that the stocks with a high (low) degree of heterogeneous beliefs have higher (lower) current stock prices and lower (higher) future returns. This difference is most obvious for small companies. While adding the heterogeneous beliefs factor into the CAPM and Fama-French three-factor model, the paper derives results which show that heterogeneous beliefs has significantly positive impacts on current stock returns and significant negative effects on future stock returns. The results re-main the same even if liquidity, momentum, and other factors are included into the CAPM and Fama-French three-factor model. If the ban on short-selling for subset of stocks is lifted, however, the heterogeneous beliefs do not have significant explanatory powers on the future return for the subset stocks. The results support the validity of Miller’s theory.