This paper proposes a liquidity-adjusted dividend-ratio model by generalizing static liquidity-adjusted asset pricing theory. We show that log stock prices, dividends, and price impact are cointegrated and define their linear combination as liquidity-adjusted price-dividend ratios. By employing vector autoregressive models, we show that expected future price impact has a significant effect on asset prices. By further decomposing it into permanent and transitory price impacts, we show that they make asset prices more speculative and smooth, respectively. We also show that news about the transitory price impact contributes to a considerable degree of stock market volatility. Our implications can help better understand the speculative behavior of asset prices and thus explain the unusual stock market phenomenon in the late 1990s.