Heterogeneous Beliefs and FOMC Announcements

This paper studies the effect of FOMC announcements on the dynamics of heterogeneous beliefs. The open interest of options decreases significantly after announcements, implying the associated high trading volume comes from unwinding positions with less disagreement. To measure this effect, I develop a quantitative general equilibrium model with heterogeneous beliefs about fundamental growth under recursive utility. On average, the disagreement on growth decreases from 1.15% to 0.55% on announcement days for recent years. In a counterfactual economy where the transparency of announcements decreases by half, disagreement increases 0.31%, and stock market volatility is 16.8% higher due to more speculative trading