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This study analyzes the long and short run relationship between the Karachi stock market index and a set of macro-economic variables using the data from 2003 to date of inflation, exchange rate and interest rates; the Auto Regressive Distributed Lag technique is used to find the long-run Co-integration relationship of the model and Ordinary Least Square and Vector Error Correction techniques are applied for the analysis of the long and short-run relationship between the Macroeconomic variables and Karachi Stock Market, the Cointegration and granger casualty test is used to verify the results. Detailed analysis show that long run Co-integration relationship does exist between stock prices and the macro-economic variables in the Karachi stock market (evidence from the significance of Wald test. While by applying the Error Correction Model the stock market has short run relationship with interest rates and exchange rates. These results confirm that the investor can predict the future behavior of the stock market by analyzing the trends and behavior of these macroeconomic variables. And in future Pakistan's economy will be going through struggling times that will eventually affect the stock market, to retain the investor's confidence. In this major part of the financial sector, government policies regarding the interest rates and controlling the inflation would be of immense importance. [ABSTRACT FROM AUTHOR]