The objective of this research is to find whether test the macroeconomic variables through Arbitrage Pricing Theory (APT) can explain the returns on the stock index in Australia. The research based on the returns of stocks listed on the Australian Stock Exchange (ASX) during the period from 31 March 2000 to 31 December 2007. The research anticipates that industry indices’ returns can be explained by three to five of the thirteen macroeconomic variables selected in the research. Empirical results suggest that macroeconomic variables, used in an APT framework, can explain consumer discretionary, energy, financial, IT, and materials, price index returns, but cannot explain other index returns. Generally, APT is a desirable model in examining the ASX200, as it explains half of the industry indices’ returns.