Markowitz versus Michaud: Portfolio Optimization Strategies Reconsidered

Several attempts have been made to reduce the impact of estimation errors on the optimalportfolio composition. On the one hand, improved estimators of the necessary momentshave been developed and on the other hand, heuristic methods have been generated to enhancethe portfolio performance, for instance the "resampled efficiency" of Michaud (1998). We comparethe out-of-sample performance of traditional Mean-Variance optimization by Markowitz(1952) with Michaud's resampled efficiency in a comprehensive simulation study for a largenumber of relevant estimators appearing in the literature. In this context we consider differentestimation periods as well as unconstrained...