There are many previous studies which explored the spillover effect between KSE 100 index and exchange rate USD/PKR. There is no study which considered the spillover effect between PSX and exchange rate USD/PKR. This study explore the spillover effect between Pakistan stock exchange (PSX) index and exchange rate USD/PKR. The daily data are used for the period of Dec, 2016 to Dec, 2018. The generalized autoregressive conditional hetroscedastic (GARCH) model and autoregressive distributed lag (ARDL) model are used for tracing spillover effect between PSX and exchange rate USD/PKR. The results are indicating that there is bidirectional spillover effect between between PSX and exchange rate USD/PKR. These results can be used by central, policy makers and markets players for making effective policies. Supervisor:- Dr. Saud Ahmad Khan