@article {Bergmann73, author = {Michael D. Bergmann and C. Thomas Howard}, title = {Multi-Index Shrinkage Estimation}, volume = {8}, number = {1}, pages = {73--79}, year = {2005}, doi = {10.3905/jwm.2005.502670}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The authors present an improved method for estimating the asset class covariance matrix for input into a mean variance optimizer. Starting with the Ledoit and Wolf [2003] stock level Bayesian shrinkage estimator, they derive a multi-index shrinkage estimator for capturing the actual asset class return structure and for estimating the covariance matrix. They test this multi-index estimator relative to the historical covariance matrix and single-index estimator. Using annual return data for 13 asset classes over the period 1960 through 2002, they find that the multi-index estimator outperforms both of the alternative estimation methods in terms of mean squared error in forecasting the actual covariance matrix and in terms of forming one-, two-, and three-years-ahead minimum-risk portfolios.}, issn = {1534-7524}, URL = {https://jwm.pm-research.com/content/8/1/73}, eprint = {https://jwm.pm-research.com/content/8/1/73.full.pdf}, journal = {The Journal of Wealth Management} }