A new procedure for resampled portfolio with shrinkaged covariance matrix

Dealing with estimation error is an important issue when we implement the mean-variance paradigm for portfolio construction. To tackle the problem, two approaches are proposed in literature, the portfolio resampling technique introduced by Michuad and the well-known shrinkaged covariance matrix method. There are certain evidences on the advantages of shrinkaged covariance over portfolio resampling, however, it is unclear whether a combination of the two approaches could produce a better performance compared with using shrinkaged covariance alone. In this paper, we propose a new algorithm to integrated linear or nonlinear shrinkage estimation with resampled portfolio to achieve a further improvement. Our method are demonstrated via extensive simulation and application in active portfolio management process.