Abstract
Continuous financing of illicit activities (drug and human trafficking, child abuse, cybercrimes) through Bitcoin nurtures the ethical risk of investors. Building on this argument, the current study investigates the extreme tail dependence between Bitcoin and Emerging Asian Islamic (EAI) markets. We report multiple tail-dependent copulas differing across turmoil periods for the whole sample period. Under the ethical-risk hypothesis and modern portfolio theory, our findings demonstrated stronger safe-haven properties of EAIs for Bitcoin to mitigate ethical risk, and higher diversification benefits are documented for both equally adjusted and optimal portfolios. We formulated useful implications for policymakers, governments, regulation authorities, ethical investors, and portfolio managers for policymaking and strategizing their investment portfolios.
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