Exchange rate risk, interest rate risk and oil price fluctuations are the most demonstrated risks in the GCC (Gulf Cooperation Council) countries (Arouri and Nguyen, 2010). Research, however, in this area is still underdeveloped. The importance of this study is to contribute to this research gap. This research aims to show how these three risks affect firms' market values by examining 473 listed firms in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates for the period January 2007 to June 2012. The research further examines the determinants of these risks. The study uses the AR (1) EGARCH-M model. The results indicate that stock returns in GCC countries are influenced by the exchange rate risk, interest rate risk and oil price risk. However, the exposure was highest for exchange rate risk and lowest for interest rate risk. While the effects of these risks were mixed, overall, exchange rate risk and oil price risk showed more positive significance as compared to the interest rate risk that showed more negatively significant effect on firm values. The level of the effect of these risk also differed from country to country. However, firms in United Arab Emirates revealed the highest exposure to all the three risks while those in Saudi Arabia showed the least exposed to the three risks. Oman firms also showed high exposure to exchange rate and interest rate risks. The segregated results overall showed lower exposure of financial firms as compared to non-financial firms. However, the non-financial firms in Bahrain were more exposed to the risks than the financial firms. In Saudi Arabia, the financial firms revealed the least exposure to the risk suggesting effective risk management practices. In addition, foreign operations and firm size had a significant influence on the extent of the firms’ exposure to all the three risks. Leverage also influenced the level of exposure to interest rate risk. Profitability, growth and liquidity did not reveal a significant influence on the level of exposure. Further, increasing the risk does not lead to increased returns in most of the GCC countries. The risk-return parameters were largely negative. However, positive news increases return volatility more than negative news in most countries. Also, the current volatility of most GCC firms’ returns are time varying, are a function or past innovation and past volatility. The volatility of stock returns, which is affected by changes in the risk factors, could demonstrate the non-prioritisation of risk management by firms.

Exchange rate risk, interest rate risk and oil price fluctuations are the most demonstrated risks in the GCC (Gulf Cooperation Council) countries (Arouri and Nguyen, 2010). Research, however, in this area is still underdeveloped. The importance of this study is to contribute to this research gap....