Change in the macroeconomic variables translates in to change in either cash flows of firms or change in the subjective discount rate which ultimately leads to change in the stock returns. Presence of mediocre players in the market in huge number and low corporate governance tends to make room for volatility triggered by macroeconomic variables. This study is focused on identifying the role of macroeconomic variables (Interest rate, money supply, gold prices, oil prices, exchange rate, inflation, foreign exchange reserves, and industrial production) in conditional return & volatility at firm level by using GARCH type models in order to capture ARCH effect. The data span for stock prices of firms from the non-financial sector and macroeconomic variables covers the period from July 1998 to June 2016. The study concludes that macroeconomic variables have a role in determining the stock returns. On average interest rate, oil prices, inflation, exchange rate are negatively related to the stock returns whereas money supply and gold prices are positively related to stock returns. Interest rate, exchange rate, and money supply are negatively related to volatility along with foreign exchange reserve and gold prices. Results suggest that macroeconomic variables are important in determining the conditional return and volatility. The implication for investors is that they need to allocate their resources in the most efficient way so that they can avoid the negative response of capital market to changes in macroeconomic variables. Supervisor:- Dr. Saud Ahmad Khan