Using the Korean stock market data over the period from 1986 to 2010, we find that stock liquidity can play an important role in explaining the cross-section of stock returns. To capture as many aspects of liquidity as possible, we take three different liquidity measures from previous literature. Regardless of liquidity measures, our results indicate strong evidence of a liquidity premium, which cannot be accounted for by the CAPM and the Fama-French three-factor model. Constructing a two-factor asset pricing model with the market and liquidity risk, we find that our liquidity factor appears to capture market liquidity conditions during our sample periods, and that the two-factor model can explain asset pricing anomalies such as the size premium and the value premium, as well as the liquidity premium, much better than the CAPM and the Fama-French three-factor model.