The optical spectrum of liquid water is analyzed by subsystem time-dependent density functional theory. We provide simple explanations for several important (and so far elusive) features. Due to the disordered environment surrounding each water molecule, the joint density of states of the liquid is much broader than that of the vapor. This results in a red shifted Urbach tail. Confinement effects provided by the first solvation shell are responsible for the blue shift of the first absorption peak compared to the vapor. In addition, we also characterize many-body excitonic effects. These dramatically affect the spectral weights at low frequencies, contributing to the refractive index by a small but significant amount.Water is the most important liquid on Earth. Thus, understanding its optical spectrum is of pivotal importance. Although there has been tremendous progress in this area, difficulties arise in the ab-initio models of the liquid because large simulation cells need to be employed due to its disordered nature. In turn, this either forces the use of approximate methods on large cells, or accurate methods on cells that are too small. As a result of this limitation, there are several open questions and interesting features of the optical absorption spectrum of water that are yet to be fully explained. In this work, we explore two themes: (1) Many-body excitonic interactions between the water molecules, and (2) coupling of the first absorption band to the nuclear degrees of freedom describing the liquid structure.By many-body effects, we mean the effects that arise when single water molecules (single bodies) in the liquid interact with each other (other bodies) both in the ground state as well as in their excited states. Although related, this definition is different in spirit from the kinds of many-body effects that a Bethe-Salpeter Equation (BSE) treatment would recover. In the latter, manybody refers to electron-hole interactions. We set out to investigate how many-body interactions affect the optical spectrum and other related quantities (such as the refractive index). These can be cooperative or anticooperative in nature.Many-body effects have been discussed before in terms of the screening properties of the bulk in the computation of self-energies for GW calculations [1,2]. It was found that screening is independent of the particular configuration of water considered. Thus, it can be inferred that it is not affected by the structure of the environment surrounding the water molecules. It has also been shown that for ice, cooperative many-body effects in the form of excitonic couplings increase the oscillator strength of low-lying excitations and are responsible for an increase of the index of refraction with increasing pressure [3].In addition, we also set out to investigate coupling between the first absorption band and the structure of the liquid. This helps us understand what influences the peak position and shape (broadening). The underlying reasons for a blue shift of the first absorption band of w...