This study investigates the link between market arbitrage risk and liquidity risk pricing in a conditional asset pricing framework. We estimate comparative models both at the portfolio and firm level in the Chinese A- and B-shares to test behavioral hypotheses with respect to foreign ownership restrictions and market segmentation. Results show that conditional liquidity premium and risk betas exhibit pronounced asymmetry across share classes which could be attributed to differentiated levels of market mispricing. Specifically, stocks with a greater degree of information asymmetry and retail ownership are more sensitive to liquidity risks when the market arbitrage risk increase. Further policy impact analysis shows that China’s market liberalization efforts, contingent upon its recent stock connect programs, conditionally reduce the price of liquidity risk for connected stocks.