Investors’ trading behavior is the premise and foundation of the stock market liquidity. With short-sale constraints, the biased information cognitive caused by investor sentiment can affect the market liquidity through behavior choices. Three important propositions about the influences on market liquidity are derived, then, combing the status quo of China’s stock market, the corresponding theoretical hypotheses are proposed. With empirical tests of these hypotheses, it is found that investor sentiment has a positive effect on the market liquidity in Chinese stock market. Consequently, a higher investor sentiment leads to stronger market liquidity. When new information comes out, the investors involved in the stock transactions are more likely to be characterized by deficient cognition. The conduct of margin trading business in the Chinese stock market further promotes the impact of investor sentiment on market liquidity, which is in contrast with the theoretical propositions and corresponding hypothesis. Finally, four policy recommendations are suggested on how to build a efficiently liquid stock market.