Roll, Schwartz, and Subrahmanyam (2007) investigate the linear relationship between stock market liquidity and index futures-cash basis. We extend their work and examine nonlinear relationship between the two variables of interests, in particular, tail dependence. We find that the tail dependence is asymmetric and varies significantly over times. The lower tail dependence between changes in (il) liquidity measured by bid–ask spread of S&P 500 index and changes in absolute value of S&P 500 index futures-cash basis is almost zero and the upper tail dependence is positive and significantly different from zero. The results suggest that an increase in liquidity is not always associated with a decrease in basis. However, a reduction in liquidity is significantly associated with an increase in basis. At the extreme situation, the link between changes in basis and changes in liquidity can break down. Arbitrage profits cannot be realized and hedging becomes less effective. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:327-342, 2013