Bootstrap percentile in GARCH models: Study case on volatility of Kuala Lumpur Shariah Index (KLSI)

High demand on the Islamic concept in stock market by investors and institutions has led to the establishment of the Kuala Lumpur Shariah Index (KLSI). To view the sustainability and effectiveness of those concepts, a further study specifically on the volatility of KLSI should be considered. In this study, the Generalized Autoregressive Conditional Heteroscedasticity, GARCH (1,1) model and the proposed model which is GARCH (1,1) hybrid with bootstrap percentiles was used to analyze the volatility of KLSI considered. For that proposed, two stages processed were performed. The first stage using GARCH (1,1) model. Bootstrap method with two replications had been considered in the second stages which were 100 replications and 500 replications. Daily KLSI returns data for the year 2009 was implemented and divided into three period of time horizon which is 1 month, 3 month and 6 month. The effectiveness of the proposed model is investigated by comparing the existing and the proposed models through the confidence intervals. The results showed that the proposed method is significantly better for estimating the conditional variance due to shortest intervals. Therefore, the proposed model is suitable in order to estimate the volatility of KLSI data. Hence, it gives confidence to the investors as well as an institution to invest in Islamic financial.