Abstract: In Kenya, the phenomenon of decline in stock returns due to increasing market based risk is triggering concerns on the stability banking sector in Kenya. The risk appetite at the Kenyan banking sector and the speculative nature of investors especially on banking stocks need to be supported with in-depth empirical evidence on the relationship that exist between risk and returns at Nairobi Securities Exchange (NSE). This study sought to investigate the influence of time-varying property of market based risk on bank stock returns at NSE using three model approach of GLS model, Fixed and Random long run and short run panel data estimation and GARCH model. The study used exchange rate and interest rate as exogeneous variables, stock return volatility as endogenous variable and bank stock returns as dependent variable.