The main objective of this study is to investigate the time-varying return and volatility impact between interest rate and exchange rate on stock returns. For this purpose, we used the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model proposed by Bollerslev (1986) to calculate the conditional variance of all the variables. To investigate the time-varying return and volatility impact between variables, we employed the Gaussian state space model, in which the regression coefficients of the model vary over time. For empirical analysis, we used the monthly data of all the underlying variables from January 2000 to December 2018. The outcomes of the GARCH model explain that the past information and volatility have a significant influence on the current period volatility for all variables. The findings also show that the volatility shocks are highly persistent in all the variables except industrial production index. The results of the time-varying model illustrate that there is significant time-varying return impacts from all the variables to stock market. These findings provide the strong evidence of the time-varying behavior of the relationship between all the underlying variables. The findings of this study also show the significant time-varying volatility impacts from all the variables to stock prices. This evidence suggests that the impact of exchange rate, consumer price index, industrial production index and interest rate volatility on stock prices volatility changes over the time. The findings of our study are useful for investors, policy makers, portfolio managers, exporters, importers, financial market participants and multinational firms for investment decisions and for appropriate policies. Supervisor: Dr Abdul Rashid Co. Supervisor: Dr Fazal Husain