Liquidity has become an important risk factor in asset pricing. Expected excess returns on stocks contain an illiquidity premium in the stock market, and excess yield partly reflects differences in the liquidity of bonds of different maturities in the Treasury market. In both asset classes, liquidity is a source of systematic risk with less liquid securities having higher returns. In the first paper, "Stock and Bond Pricing with Liquidity Risk" I test the liquidity linkage between the stock and Treasury bond markets and its implications for asset pricing. I find that liquidity has a cross-market effect, which I attribute to trading activity across markets. I show that stock returns contain not only an illiquidity premium of the stock market as has been documented in the literature, but also an illiquidity premium of the bond market. Bond returns also contain an illiquidity premium of both the stock and bond markets. These results hold in time series and cross section and are robust to different liquidity measures. They are statistically and economically significant and have multiple applications for asset pricing. The second paper explores the properties of stock and bond market liquidity over long-run. I find a significant causal relationship between the liquidity of the two asset classes. The vector autoregression analysis shows that returns, volatility, and momentum profits are important drivers of liquidity. Monetary policy variables have a stronger effect on bond liquidity than on stock liquidity. Overall, the results promote understanding of a cross-market liquidity effect. The third paper studies a long-run liquidity effect after stock splits. It resolves a long-lasting puzzle in Finance about why firms split their stocks. It provides the missing link (long-run liquidity effect) to competing theories and suggests that all of them can be true at the same time.