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Constantinides (1986) finds that transaction cost has only a second order effect on liquidity premia. In this paper, we show that simply incorporating the well-established time-varying return dynamics across trading and nontrading periods generates a first order effect that is much greater than that found by the existing literature and comparable to empirical evidence. Surprisingly, the higher liquidity premium is Not from higher trading frequency, but mainly from the substantially suboptimal (relative to the no transaction case) trading strategy chosen to control transaction costs. In addition, we show that adopting strategies prescribed by standard models that assume a continuously open market and constant return dynamics can result in significant utility loss. Furthermore, our model predicts that trading volume is greater at market close and market open than the rest of trading times.