AbstractAs opposed to the “low beta low risk” convention, we show that low beta stocks are illiquid and exposed to high liquidity risk. After adjusting for liquidity risk, low beta stocks no longer outperform high beta stocks. Although investors who “bet against beta” earn a significant beta premium under the Fama–French three‐ or five‐factor models, this strategy fails to generate any significant returns when liquidity risk is accounted for. Our work helps understand the beta premium from a new liquidity‐risk perspective, and draws useful implications for both fund and corporate managers.