Purpose This study aims to examine the dynamic relationships among financial development, oil price volatility, investment and inflation in the financial markets of Gulf Cooperation Council (GCC) economies from 2004 to 2023. It aims to disentangle short- and long-run macro-financial interactions in resource-dependent economies and identify the key drivers of financial market stability and resilience. In doing so, the study assesses how economic diversification moderates exposure to oil price shocks and inflationary pressures, contributing to ongoing debates on sustainable finance and structural transformation in the GCC. Design/methodology/approach The study uses a panel Autoregressive Distributed Lag (ARDL) framework to estimate short- and long-term relationships between financial market performance and selected macro-financial variables. The analysis covers major global disruptions, including the 2008 global financial crisis and the COVID-19 pandemic, allowing an assessment of market vulnerability and adjustment dynamics under heightened uncertainty. Annual data from six GCC economies are used, enabling cross-country heterogeneity while preserving long-run equilibrium relationships. Findings The results indicate that financial development and oil price dynamics exhibit stronger short-run sensitivity in the adjustment process, while their long-run effects highlight the stabilizing role of diversification and institutional capacity. Investment is a consistent and robust driver of financial market stability in both the short- and long-term. Inflation has asymmetric effects: moderate inflation is associated with long-run market expansion, while short-term inflationary shocks tend to destabilize financial markets. Overall, the findings indicate that financial deepening alone does not guarantee stability unless accompanied by regulatory capacity and diversification, pointing to a “too much, too soon” dynamic in oil-dependent financial systems. Research limitations/implications The analysis is limited to GCC economies and relies on aggregate macroeconomic indicators. Future research could extend the framework to other resource-dependent regions, incorporate nonlinear modeling approaches and integrate firm-level data to better capture micro-level transmission channels. Practical implications The findings provide policymakers with evidence-based guidance for strengthening financial market resilience through strategic investment, effective inflation management and sequenced financial development aligned with diversification objectives. Reducing reliance on oil revenues while deepening financial markets under robust regulatory frameworks is essential for long-term stability. Social implications By promoting financial sustainability and macroeconomic resilience, the study aligns with Environmental, Social and Governance (ESG) priorities and the United Nations Sustainable Development Goals (SDGs). Successful diversification can support job creation, reduce economic volatility and enhance societal welfare across GCC economies. Originality/value This study advances the literature by integrating key macro-financial variables into a panel ARDL framework tailored to the GCC context. By explicitly distinguishing between short- and long-run transmission mechanisms, it provides new empirical evidence on how financial development, oil price volatility, investment and inflation jointly shape financial market stability in oil-dependent economies, offering cautiously transferable insights for other resource-rich countries pursuing sustainable economic transformation.
AlShurafa et al. (Mon,) studied this question.