The main objective of this study is to examine the relationship between Karachi stock exchange and macroeconomic variables i.e. inflation rate, exchange rate, treasury bills and interest rate. Monthly time series data from January 2005 to December 2010 have been used to investigate the causal association among macroeconomic indicators and Karachi stock market. The co-integration test and Granger Casualty have been applied to drive the short and long-term investigation. The results found bi directional Granger causality among KSE and exchange rate and One way Granger causality exists among KSE and interest rate, no Granger causality found among KSE and inflation rate and KSE and treasury bills. Which means performance of macro-economic variable somehow affects the stock index; moreover, stock prices in Pakistan do not reflect the macro-economic condition of the country. This study emphasizes on the crash of macro-economic indicators on the capital market performance of developing countries. The performance of capital markets of developing countries calculated by these macro-economic indicators.