1. Introduction

The global financial crisis that started in the US in late 2007 and hit the world in 2008 has had a wide array of impacts on the economy of many countries all over the world (Ellaboudy, 2010; Smolo and Mirakhor, 2010; Kassim and Majid, 2010). Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems (Molochny, 2009). The crisis has emerged with the breakdown of several large United States financial firms such as Lehman Brothers and spread rapidly leading to a global downturn of uncertain severity and duration. The impact of the financial sector failure on activities of the real economic sectors has become increasingly evident, propagating beyond its initial epicentres to affect other advanced economies and emerging markets including the rich Arab GCC countries (Ellaboudy, 2010).

However, on the other hand the crisis has raised public interest in Islamic stock markets since they are said to be relatively much less affected by the crisis. It is even argued that if the principles of Islamic finance had been followed, the financial crisis would have been prevented (Ahmed, 2009). Even though the claims need to be empirically proven, it is becoming a trend now that after the crisis more people are interested in understanding Islamic finance and its principles than ever before. For example, the Vatican has called for reliance upon Islamic finance principles in financial dealings (Totaro, 2009).

Islamic finance is currently spread all over the world both in Muslim and non-Muslim countries. One of the regions important to the development of Islamic finance is the Gulf Cooperation Council (the GCC) region. The GCC is a regional association of six countries located in the Arabian Gulf. The association was established in 1981 with member countries Qatar, Kuwait, the UAE, Bahrain, Oman and Saudi Arabia. The member states have similar characteristics in the sense that all of them are Arab and Muslim majority states. One of its members, Saudi Arabia is the guardian of the two Muslim holiest cities and the place where the Prophet Muhammad was born and spread the teaching of Islam during his life. The member states are also characterized as oil and gas rich countries in which Saudi Arabia is the world’s biggest oil producer and Qatar is one of the largest liquefied natural gas exporters. As oil prices rose for several years before the 2008 global financial crisis, the GCC member states were enriched with an excess of liquidity to be invested. The increase in oil price has also made the GCC countries wealthier than before.