The dynamic relationship among private and public markets and its most important features

We examine how and why return spillovers are transmitted between private and public markets. Using daily data for four private and four public market segments, we apply a Quantile Vector Autoregression (QVAR) framework to capture dynamic, state-dependent spillovers under bearish, neutral, and bullish conditions. The results show substantial and time-varying connectedness, with private markets frequently acting as net transmitters of shocks. Spillovers intensify in both market expansions and contractions, strengthening systemic risk. Macro-financial variables influence spillover magnitude, with explainable AI (XGBoost) identifying inflation as the most important driver, followed by geopolitical risk and economic policy uncertainty. Portfolio analysis further demonstrates that connectedness-informed allocation strategies substantially improve risk-adjusted performance compared to traditional portfolios. These findings challenge the perception of private markets as insulated from public market dynamics and highlight the need to incorporate macroeconomic conditions into asset allocation, hedging, and stress-testing frameworks. By integrating private markets into the spillover literature, we extend portfolio theory and provide actionable insights for investors and policymakers navigating increasingly interconnected financial systems.