This paper investigates the return links and volatility transmission between oil and stock markets in the Gulf Cooperation Council (GCC) countries over the period 2005–2010. We employ a recent generalized VAR-GARCH approach which allows for transmissions in return and volatility. In addition, we analyze the optimal weights and hedge ratios for oil-stock portfolio holdings. On the whole, our results point to the existence of substantial return and volatility spillovers between world oil prices and GCC stock markets, and appear to be crucial for international portfolio management in the presence of oil price risk. ► There exist significant shock and volatility spillovers between oil and stock markets in most cases. ► Oil price volatility caused by shocks to oil supply/demand increases GCC stock market volatility. ► Portfolio’s risk-adjusted return attributes are improved with the inclusion of the oil assets. ► Empirical findings are sensitive to country-specific factors.