Oil Price Volatility and Tail Risk Dynamics in the Indian Stock Market: Insights From the <scp>CAViaR</scp> and <scp>TVP</scp> ‐ <scp>VAR</scp> Models

ABSTRACT This study examines tail risk transmission across Indian stock sectors, employing the conditional autoregressive value‐at‐risk (CAViaR) model and time‐varying parameter vector autoregression (TVP‐VAR) methodology. We uncover substantial interconnectedness, with total connectedness indices (TCIs) for both negative and positive tail risks reflecting significant inter‐sectoral dependency. Analysis highlights symmetrical tail risk transmission across sectors and identifies consumer discretionary, financial services, and industrials as pivotal in risk distribution. Crude oil volatility is pinpointed as a key factor influencing negative tail risk connectedness, notably during geopolitical upheavals. The results emphasize the constrained potential for sectoral diversification in mitigating systemic risks, advocating for advanced risk management practices and diversified investment portfolios.