Stable Value Funds: Performance from 1973 Through 2008

46 Pages Posted: 2 Sep 2009 Last revised: 20 Sep 2009

See all articles by David F. Babbel

David F. Babbel

University of Pennsylvania - The Wharton School - Finance and Insurance Departments; CRA International

Miguel Herce

CRA International, Inc.

Date Written: September 12, 2009


There is a paucity of academic literature on stable value funds, although they occupy such a prominent place among retirement investment vehicles. They are offered in roughly one half of all defined contribution plans in the USA, with over $640 billion dollars worth of assets under management. This paper is the first to rigorously examine their performance throughout the entire period their inception in 1973. We conduct mean-variance analysis, Sharpe and Sortino ratio analysis, stochastic dominance analysis, and optimal multi-period portfolio composition analysis. Our evidence suggests that stable value funds dominate two (and nearly three) major asset classes based on a historical analysis, and that they occupy a prominent position in optimal portfolios across a broad range of risk aversion levels. We discuss the factors that contributed to stable value’s remarkable performance and whether it can continue to maintain it into the future. In our paper, innovations are achieved in constructing efficient stochastic dominance algorithms, incorporating return expectations in multi-period portfolio construction, and in examining the multi-relations among competing stable value funds. We also provide a stable value returns index based on actual fund returns.

Keywords: Stable value, defined contribution, optimal asset allocation, stochastic

JEL Classification: G11, G22, G23, J26

Suggested Citation

Babbel, David F. and Herce, Miguel, Stable Value Funds: Performance from 1973 Through 2008 (September 12, 2009). Available at SSRN: or

David F. Babbel (Contact Author)

University of Pennsylvania - The Wharton School - Finance and Insurance Departments ( email )

215 Wakefield Road
Bryn Mawr, PA 19010
United States
610-527-1839 (Phone)

CRA International ( email )

John Hancock Tower
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Boston, MA 02116-5092
United States
610-527-1839 (Phone)

Miguel Herce

CRA International, Inc. ( email )

1201 F. St. NW
Ste. 700
Washington, DC 20004
United States

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