Investors demand more of an asset, the more desirable the asset’s characteristics. The most important characteristic is its price, or expected return. By varying price, any and all assets become desirable enough for the capital market to clear.

Asset characteristics other than price include both risk and non-risk characteristics. The Capital Asset Pricing Model and Arbitrage Pricing Theory have described the risk characteristics. The non-risk characteristics are not as well understood. They include taxation, marketability and information costs. For many assets, these non-risk characteristics affect price, or expected return, even more than the risk characteristics.

Investors regard asset characteristics as positive or negative costs, and investors evaluate expected returns net of these costs. The New Equilibrium Theory (NET) framework applies to all assets—including stocks and bonds, real estate, venture capital, durables and intangibles such as human capital—and incorporates all asset characteristics.