John Weirstrass Muteba Mwamba

Haute École de Commerce de Kinshasa,

Kinshasa, D. R. Congo;

York University, School of Health Policy & Management,

Toronto, Canada;

University of Johannesburg, School of Economics,

South Africa

jwmm@yorku.ca

ORCID 0000-0002-8002-1156

Optimal timing in foreign exchange markets: The role of economic fundamentals and market connectedness

Edson Niyonsaba Sebigunda

Haute École de Commerce de Kinshasa,

Centre de Recherche en Sciences Humaines (CRESH),

Kinshasa, D.R. Congo

nedson@heckin.ac.cd

Abstract. This paper develops an integrative methodology to determine the optimal execution time in the foreign exchange markets using mixed-data sampling (MIDAS) regression technique. The MIDAS technique aims to integrate low-frequency macroeconomic indicators with high-frequency market data. The paper utilizes daily exchange rates for seven major currency pairs (CAD/USD, CNY/USD, CDF/USD, EUR/USD, JPY/USD, ZAR/USD, and NGN/USD), covering a range of developing and developed economies. MIDAS regression models that incorporate annualized GDP growth rates and annualized inflation differentials were found to perform significantly better than autoregressive benchmarks, and achieved substantially higher R-squared values, specifically for emerging market currencies. Structural break analyses identified 14 separate volatility regimes, with high-stress regimes having 1.67 times higher volatility. Time-varying parameter Vector Autoregression models showed strong interconnections among currency pairs in the foreign exchange markets, with the majority of forecast error variance resulting from spillover effects, namely, the influence of shocks in one currency pair on the volatility of others. Through backtesting of several execution rules, we found that a simple momentum-based rule produced the highest risk-adjusted returns, with an average annual Sharpe ratio of 2.37. In contrast, low volatility and low connectivity rules resulted in negative returns. These results provide new empirical evidence of the ability of macro fundamental indicators to predict future behavior in the foreign exchange markets, and illustrate the practical application of MIDAS-based execution time models in managing the risks associated with executing large scale transactions across structurally diverse economies.

Received: August, 2025

1st Revision: January, 2026

Accepted: June, 2026

DOI: 10.14254/2071-8330.2026/19-2/9

JEL Classification: G11, G15, F31, C58

Keywords: foreign exchange, execution timing, market connectedness, spillover networks, MIDAS, momentum strategy