We study return predictability using a model of speculative trading among relatively overconfident competitive traders who agree to disagree about the precision of their private information. Although traders apply Bayes Law consistently, returns are predictable. In addition to trading on...

Banerjee, Kaniel, and Kremer (2009) claim that specific models of disagreement (their Examples 3 and 4) illustrate positive return autocorrelation (price drift). Based on a formal definition of equilibrium with heterogeneous beliefs, we prove that these examples do not actually generate price...