Exploring momentum strategy: Applying the combina-tion of Permutation Entropy, Permutation Transition Entropy, and continuing overreaction for the Vietnam-ese stock market

This study addresses the increasing need for a comprehensive framework to better understand momentum dynamics in the Vietnamese stock market. The main objective is to develop and validate an effective momentum strategy by integrating different analytical approaches to capture short-, medium-, and long-term market behaviors. To achieve this, the research employs monthly trading volume data for all stocks listed on the VNINDEX from January 2015 to February 2025. The framework combines Permutation Entropy (PE) and Permutation Transition Entropy (PTE) to identify short-term momentum and daily price dynamics, while the J/K-month method is applied to assess overreaction patterns. The findings reveal that short-term momentum persists, while medium and long-term CO effects display a mean-reverting tendency, suggesting a gradual correction of excessive price movements. The application of PE and PTE further highlights the structural complexity of Vietnam’s stock market. The backtesting of the proposed strategy, which incorporates both methods, performs especially well at m = 2 and m = 3 during the 2023–2025 period.