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# COSMIC EXPANSION AND H0: A RETRO- AND PRO-SPECTIVE NOTE

## 1 Introduction

The conquest of the third dimension beyond the Galaxy was one of the great challenges of the 20th century. It is not possible to do justice to its fascinating and complex history in a few pages. Much of the progress during the first half of the century was made at Mount Wilson. Insight into this part of the history is provided by Sandage (1995), and his forthcoming monograph “An informal history of the Mount Wilson Observatory (1904$``$1950)” will be the prime reference for the subject with all its ramifications into most fields of astronomy.

## 2 Early Galaxy Distances

The battle about the nature of the “nebulae” was still raging (cf. Fernie 1970) when the first attempts were made to measure the distances of individual galaxies. Five steps should particularly be remembered:

* Hertzsprung’s (1914) tragedy. He had determined the distance modulus of SMC from Cepheids to be $`(mM)_{\mathrm{SMC}}=20.3`$ (115 kpc), roughly a factor 1.8 too large. According to the custom of the time he transformed the distance into a trigonometric parallax of $`0.^{\prime \prime }0001`$, losing a factor of 10 during the process. While transforming the parallax into light years he lost another factor of ten. Thus his published distance of 3000 light years buried his sensational result.
* Shapley’s (1915; 1918) mistake. In the following year Shapley repeated Hertzsprung’s measurement. For various reasons he now obtained a Cepheid distance of only $`(mM)_{\mathrm{SMC}}=16.1`$ (17 kpc), which he slightly increased in 1918 and which he could take as a confirmation of his conviction that all “nebulae” were part of his very large Galactic system.
* Lundmark’s (1920) insight: He was the first to recognize supernovae as a class distinct from novae. This explained the brightness of the “nova” 1885 in M 31 and led him to a modulus of $`(mM)_{\mathrm{M31}}=21.3`$ (180 kpc). Still much too low the value could not be accommodated within even the wildest size estimates of the Galaxy. But the result had no influence on the “Great Debate”.
* Öpik’s (1921; 1922) ingenuity. He used the rotation velocity of M 31 to determine the mass-to-light ratio of the galaxy and he broke the distance degeneracy of this value by adopting a very reasonable mass-to-light ratio of the Solar neighborhood. He obtained a stunningly good value of $`(mM)_{\mathrm{M31}}=24.5`$ (750 kpc), which he decreased in the following year by a factor of 1.7. Öpik’s papers remained unnoticed.
* Hubble’s breakthrough in 1924. The discovery of several novae in “nebulae”, first by Ritchey (1917), stimulated the search for variability and led Hubble to the discovery of a Cepheid in M 31 in 1923, — the first Cepheid beyond the Magellanic Clouds. At the meeting of the Association for the Advancement of Science in December 1924 he announced the discovery of several very faint Cepheids in M 31. They proved that many of the nebulae are actually “island universes”, but the proof was not generally accepted for a while, because van Maanen’s (1923) unexplained measurement from proper motions of a detectable rotation of the spirals (for a possible exlanation cf. Baade 1963) stood still in the way. Hubble published his Cepheid distance of M 31 only in 1929a, after he had published the Cepheids in NGC 6822 (1925) and M 33 (1926).

## 3 The Emergence of Cosmic Expansion

The great paradigms are often introduced on humble paths. Did Slipher (1914) realize that his first – and subsequent – radial velocities of “nebulae” would be the stepping stone of modern cosmology? The first interpretations of the surprisingly large radial velocities were made under the impression of the “de Sitter (1916, 1917) effect”, which was a correct, yet unphysical solution of Einstein’s field equation, predicting a change of the clock rate with the square of the distance $`r`$ in a static Universe (Wirtz 1918, 1925; Stromberg 1925; Lundmark 1925). Lundmark wrote “the smaller and presumably more distant spirals have a higher space motion”, yet his ansatz $`v=ar+br^2+c`$ betrays his preoccupation with the de Sitter effect.

Lemaître (1927) was the first to combine observations with the theory of expanding space. Extrapolating Hubble’s Cepheid distances, he derived a value of what was to become known as the “Hubble constant” of $`H_0=627`$\[km s-1 Mpc-1\]. A similar analysis of the observations led Robertson (1928) to imply a value of $`H_0=461`$.

Hubble had used his Cepheid distances to calibrate the brightest stars ($`M_{\mathrm{pg}}=6.3`$) and the mean luminosity of bright galaxies ($`M_{\mathrm{pg}}=15.8`$; — either value $`4^\mathrm{m}5^\mathrm{m}`$ too faint). In this way he extended his distance scale out to the Virgo cluster. Hubble (1929b) plotted his distances against Slipher’s radial velocities and derived a value of $`H_0=500`$. This is generally considered as the discovery of the expanding Universe. But he was not sure what to make of his discovery and he commented: “…the relation may represent the de Sitter \[clock\] effect”. Considerable weight of Hubble’s solution hinges on four Virgo cluster members, which would nowadays be excluded because of their virial motions. Hubble was lucky that Slipher had not accidentally picked the bright Virgo spiral NGC 4569 with its negative radial velocity; this galaxy would have considerably confused his first Hubble diagram. But he knew already of M. Humason’s very large velocity of NGC 7619 (3800 km s-1), and in the following years he extended the Hubble diagram in collaboration with Humason beyond 40 000 km s-1(Humason 1936). It is curious that Hubble, while convincing the world of the expanding Universe with his brilliant book “The Realm of the Nebulae” (1936a), died with doubts on his mind about the expansion. They were based on his unsatisfactory counts of galaxies (Hubble 1936b; cf. Sandage 1995), and his last Hubble diagram (1953) is commented “no recession factor applied”, i.e. he did not apply the full K-correction required in an expanding Universe (cf. Sandage 1995).

de Sitter (1930) extended the Hubble diagram to $`7800\text{ km\hspace{0.17em}s}\text{-1}`$ including new redshifts by F.G Pease and M. Humason. Hubble was outraged and took it as an undue competition. de Sitter used distances by Shapley, Lundmark, and Hubble as calibrators and galaxy diameters as distance indicators. His data imply a Hubble constant just short of 500. Having discarded his clock rate effect he proved deep insight into his result, still exceptional at the time, by writing: “The only acceptable explanation …is by the inherent expanding tendency of space which follows from the solution …of Einstein’s differential equations for the inertia field”.

Any possibly remaining doubt about the expansion of space was dispelled (it took a Fritz Zwicky to remain reluctant) by the fundamental paper by Humason, Mayall, & Sandage (1956, known as HMS). The authors presented redshifts for 920 galaxies, objectively measured magnitudes, the first correct K-corrections, and a Hubble diagram of field galaxies as well as a tight Hubble diagram of clusters.

In the following years Sandage (e.g. 1972; Sandage & Hardy 1973; Sandage, Kristian, & Westphal 1976) started a vast program to extend and to tighten the Hubble diagram of brightest cluster members with the final goal to determine the deceleration parameter $`q_0`$. The program came to a halt when it become clear that (cluster) galaxies undergo luminosity evolution. But the results were decisive subsequent to the discovery of the large quasar redshifts which stimulated a mysticism, even among astronomers, which is now hard to understand.

We will return to the ultimate Hubble diagram of supernovae of type Ia in Section 8, which does not only lead to the large-scale value of $`H_0`$, but with considerable likelihood even to a combined value of $`\mathrm{\Omega }_\mathrm{M}`$ and $`\mathrm{\Omega }_\mathrm{\Lambda }`$.

## 4 The Stretching of the Distance Scale

Hubble (1936b) has decreased his 1926 distances, and it became increasingly clear that they had further to be decreased to account for Galactic absorption (cf. Table 1). But Hubble gave his 1936 distances to E. Holmberg as his preferred values still in 1950.

Yet Hubble’s distance scale was challenged by Behr (1951). He noticed the large luminosity scatter of Local Group galaxies and he argued via the Malmquist effect that Hubble’s mean luminosity was too faint by $`1.^\mathrm{m}5`$ if applied to more distant, magnitude-selected galaxies. (This is to our knowledge the first mentioning of Malmquist statistics in extragalactic work; cf. Section 7). Citing Baade (1944) he also corrected Hubble’s magnitudes by $`0.^\mathrm{m}35`$ (at $`18.^\mathrm{m}3`$). These were Behr’s two main reasons for deriving a value of $`H_0=260`$. He would have found an even smaller value had he known of Stebbins, Whitford, & Johnson’s (1950) pioneering photoelectric photometry which proved Hubble’s photometric scale error to be even larger.

The revision received much more weight when Baade (1952) announced that work in M 31 had shown, that either the zero point of the Cepheids or of the RR Lyr stars must be in error. Since Sandage’s (published 1953) color-magnitude diagram of M 3 had shown that the RR Lyr stars are correct, the Cepheid luminosities had to be increased, as Mineur (1945) had already suggested. Baade concluded that “previous estimates of extragalactic distances …were too small by as much as a factor of 2”, which led him to $`H_0250`$.

Accounting for the first four years of research with the $`200^{\prime \prime }`$ telescope, Sandage (1954) summarized the evidence for $`H_0`$ and concluded $`125<H_0<276`$.

HMS (1956) estimated $`H_0=180`$ on two grounds: (1) They showed that what Hubble had considered as brightest stars of NGC 4321, a member of the Virgo cluster, were actually HII regions. The brightest stars set in only $`2^\mathrm{m}`$ fainter. (2) The absolute magnitude of M 31, resulting from its apparent Cepheid modulus of $`(mM)=24.25`$ (Baade & Swope 1954), could be used by the authors to calibrate the upper-envelope line of their Hubble diagram of field galaxies on the assumption that the luminosity of M 31 must be matched by at least some galaxies.

The confusion between brightest stars and HII regions was elaborated by Sandage (1958). The corresponding correction together with the correction of Hubble’s photometric scale led him to conclude that the 1936 distance scale was too short by $`4.^\mathrm{m}6`$ and consequently that $`H_0=75`$. He noted that if the brightest stars had $`M_{\mathrm{pg}}=9.5`$ (which is now well demonstrated) $`H_0`$ would become $`55`$. He also concluded from novae that Hubble’s Local Group distances were more nearly correct, i.e. too small by “only” $`2.^\mathrm{m}3`$ on average (cf. Table 1). Sandage’s paper has become a classic for not only having given the first modern values of $`H_0`$, but also because it contains the first physical explanation of the instability strip of Cepheids.

The situation in mid-1961 was summarized by Sandage (1962) at the influential 15th IAU Symposium (cf. Table 1). While he cited values of $`H_0110`$ by Sérsic (1960), van den Bergh (1960), and Holmberg (1958), his own values — based, in addition to Cepheids and brightest stars, on the size of HII regions — were 75$``$82. F. Zwicky pleaded in the discussion for $`H_0=175`$ from supernovae.

## 5 A New Start on the Distance Scale 1960–1990

The still unchallenged (within the errors) Cepheid distance of M 31 of $`(mM)^0=24.20\pm 0.14`$ (Baade & Swope 1963), derived by H.H. Swope after W. Baade’s death from his $`200^{\prime \prime }`$-plates and from H. C. Arp’s photoelectric sequence, may be considered as the beginning of a new era. (For the history of the time cf. also Sandage 1998, 1999a).

By the same time the “direct” (i.e. non-spectroscopic) staff members at the Mount Wilson and Palomar observatories (W. Baade, E. Hubble, M. Humason, A. Sandage, and others) had accumulated many $`200^{\prime \prime }`$-plates of a few galaxies outside the Local Group for work on the Cepheids. In addition, A. Sandage had set up photoelectric sequences around these galaxies, whose faintness and quality has remained unsurpassed until the advent of CCD detectors.

Although the first Cepheid distance of NGC 2403 to come out of this program confirmed Sandage’s 1962 value (Tammann & Sandage 1968), using the then latest version of the Cepheid period-luminosity (P-L) relation (Sandage & Tammann 1968), it was criticized as being (much) too large (e.g. Madore 1976; de Vaucouleurs 1978; Hanes 1982). The modern value is actually marginally larger (Freedman et al. 2001).

The second galaxy of the program, NGC 5457 (M 101), came as a great surprise: its distance was found twice the value of Sandage’s (1962) estimate (Sandage & Tammann 1974a), i.e. $`(mM)^0=29.3`$. The distance of M 101 and its companions was based on brightest stars, HII region sizes, and van den Bergh’s (1960) luminosity classes of spiral galaxies, but also heavily on the absence of Cepheids down to the detection limit. The faint Cepheids were eventually found with HST, yielding $`(mM)^0=29.34`$ (Kelson et al. 1996). In the mean time the distance had been denounced as being too large (e.g. de Vaucouleurs 1978; Humphreys & Strom 1983).

The new distance of M 101 made clear that the brightest spirals of luminosity class (LC) I are brighter than anticipated and that the luminosity of their brightest stars and the size of their largest HII regions had to be increased. This led immediately to a distance of the Virgo cluster of $`(mM)=31.45`$ (Sandage & Tammann 1974b), — a value probably only slightly too small (cf. Tammann et al. 2001b). The ensuing luminosity calibration of LC I spirals could then be applied to a specially selected, distance-limited sample of 36 such galaxies, bounded by $`8500\text{ km\hspace{0.17em}s}\text{-1}`$. The conclusion was that $`H_0=55\pm 5`$ “everywhere” (Sandage & Tammann 1975). The largest contribution to the systematic errors was attributed to the calibration through Cepheids (cf. Section 9).

The main antagonist of this solution became G. de Vaucouleurs. Having started with $`H_0=50`$ from brightest globular clusters (de Vaucouleurs 1970), he switched to $`H_0100\pm 10`$ (de Vaucouleurs 1977; de Vaucouleurs & Bollinger 1979). By assuming rather short local distances and by turning a blind eye to all selection effects, he managed to maintain this value — eventually with strong directional variations — until his last paper on the subject (de Vaucouleurs & Peters 1985).

In the mean time new distance indicators were proposed which correlate global galaxian observables with the total luminosity or the diameter of a galaxy. An extrapolation of Öpik’s (1921) method was to use the 21cm HI-line width (a measure of the rotational velocity) as a mass and hence luminosity indicator, i.e. the so-called Tully-Fisher relation (Gouguenheim 1969; Tully & Fisher 1977; Sandage & Tammann 1976). It followed the L-$`\sigma `$ (Minkowski 1962; Faber & Jackson 1976), Dn-$`\sigma `$ (Dressler et al. 1987), or fundamental plane (Djorgovski & Davis 1987) method and the surface brightness fluctuation (SBF) method (Tonry & Schneider 1988). Since these relations have considerable intrinsic scatter their discussion is deferred to Section 7.

The turnover point of the bell-shaped luminosity function of globular clusters has been used as a distance indicator (van den Bergh, Pritchet, & Grillmair 1985) . The successes and failures of the method are discussed elsewhere (Tammann & Sandage 1999).

Following a proposal by Ford & Jenner (1978) also brightest planetary nebulae have been widely used as distance indicators. But the method seems to depend on population size (Bottinelli et al. 1991; Tammann 1993), chemical composition, and age (Méndez et al. 1993).

## 6 A Complication: Peculiar Motions

Peculiar motions, addressed already by de Sitter (1930), may camouflage the true value of $`H_0`$, the negative velocity of M 31 being a clear warning. Moreover Zwicky (1933) had pointed out the enormous virial motions in high-density clusters. But in the 1930’s the one-dimensional peculiar motions of field galaxies were estimated to be $`<200\text{ km\hspace{0.17em}s}\text{-1}`$ (Hubble & Humason 1931, 1934). Later work has shown that they are rather $`<50\text{ km\hspace{0.17em}s}\text{-1}`$ on average at a local scale of $`5`$Mpc (Yahil, Tammann, & Sandage 1977; Sandage 1986; Ekholm et al. 2001; Karachentsev et al. 2002) or even of $`10`$Mpc (Tammann & Kraan-Korteweg 1978). Yet the size of the peculiar motions increases with the scale length.

The first physically motivated detection of a significant streaming velocity, viz. towards the Virgo cluster center, is due to Peebles (1976; Davis & Peebles 1983). Later work showed that the Virgocentric flow amounts to $`220\pm 50\text{ km\hspace{0.17em}s}\text{-1}`$ at the position of the Local Group (Tammann & Sandage 1985; Kraan-Korteweg 1986). Much larger streaming velocities have since been proposed over still larger scales, but it has never become clear, whether they are not due to Malmquist bias of poorly defined galaxy samples (Section 7).

The total (three-dimensional) vector of $`630\text{ km\hspace{0.17em}s}\text{-1}`$ of all peculiar motions the Local Group partakes in, is reflected in the CMB dipole (Corey & Wilkinson 1976; Smoot, Gorenstein, & Muller 1977). A significant fraction of the dipole is probably generated on scales within $`<6000\text{ km\hspace{0.17em}s}\text{-1}`$ (Dale et al. 1999; da Costa et al. 2000), although some authors still favor higher values. As a consequence a reliable large-scale value of $`H_0`$ should be determined at $`>6000\mathrm{10\hspace{0.17em}000}\text{ km\hspace{0.17em}s}\text{-1}`$ (Section 8).

Notwithstanding the presence of large bulk motions the mean value of $`H_0`$ turns out to be surprisingly scale-invariant. Within $`v1200\text{ km\hspace{0.17em}s}\text{-1}`$ (excluding the Virgo region) $`H_0`$ is only insignificantly different from the large-scale value by $`\mathrm{\Delta }H_0=1.8\pm 2.7`$ (Tammann et al. 2001b, Fig. 9). Note that the local and distant values of $`H_0`$ are about equally affected by any errors of the underlying Cepheid calibration (cf. Section 9).

## 7 Yet Another Problem: Selection Bias

The lesson of Malmquist (1920) was only slowly incorporated by extragalactic workers and is still not fully accounted for in some modern work. The essence is that the mean luminosity of objects drawn from an (apparent-) magnitude-limited sample increases with distance, and that one overestimates $`H_0`$ as a consequence of this, if one applies a local calibration to distant objects.

The influence of the Malmquist bias was greatly exacerbated when distance indicators came into use which use global galaxian parameters as distance indicators, like the LC, TF, Dn-$`\sigma `$ (or fundamental-plane), or SBF methods. These methods have important luminosity scatter in the order of $`\sigma _M>0.^\mathrm{m}3`$, and since the bias is strongly dependent on the size of the true intrinsic scatter $`\sigma _M`$ (which is difficult to determine), they are highly susceptible to Malmquist bias. Non-allowance for Malmquist bias leads always, of course, to too high values of $`H_0`$.

The literature abounds with $`H_0`$ determinations by means of the above relations as applied to (complete or even incomplete) magnitude-limited samples. They typically lead to incorrect values of $`70<H_0<80`$.

The obvious way to overcome the Malmquist bias is to use distance-limited samples. Examples are TF distances of a complete galaxy sample bounded by $`1000\text{ km\hspace{0.17em}s}\text{-1}`$ (avoiding the wider Virgo region as being too noisy for velocities to represent a good distance cutoff; Federspiel 1999; cf. Tammann et al. 2001b, Fig. 5a) and giving $`H_0=59\pm 3`$, or a complete sample of Virgo cluster spirals yielding a TF modulus of $`(mM)_{\mathrm{Virgo}}=31.58\pm 0.24`$ (Federspiel 1999).

But complete distance- or volume-limited samples are restricted to quite local regions. Several authors have therefore developed various methods how to derive unbiased values of $`H_0`$ from (complete) magnitude-limited samples of field galaxies (Teerikorpi 1984, 1997; Bottinelli et al. 1986; Federspiel, Sandage, & Tammann 1994; for a tutorial see Sandage 1995; for a parameter-free method see Hendry 2002). Also cluster samples are affected by Teerikorpi Cluster Population Incompleteness Bias (Teerikorpi 1987; Sandage, Tammann, & Federspiel 1995). The original hope that the inverse TF relation was bias-free has not substantiated (Teerikorpi et al. 1999).

Bias-corrected samples of field galaxies give typical values of $`H_0<60`$, e.g. from LC (Sandage 1996, 1999b, 2002; Paturel et al. 1998), from TF (Theureau et al. 1997; Theureau 2000; Ekholm et al. 1999; Hendry 2002), from galaxy diameters (Goodwin et al. 1997), and from the Dn-$`\sigma `$ method (Federspiel 1999).

All these solutions reach hardly beyond $`5000\text{ km\hspace{0.17em}s}\text{-1}`$, even in the best cases. The determination of the large-scale value of $`H_0`$ is therefore deferred to the next Section.

## 8 The Golden Route to the Large-Scale Value of $`𝑯_\mathrm{𝟎}`$

Two developments have opened a simple and reliable way for the determination of $`H_0`$ out to distances of $`\mathrm{30\hspace{0.17em}000}\text{ km\hspace{0.17em}s}\text{-1}`$.

1) Following an early suggestion by Kowal (1968) it has become increasingly clear that SNe Ia are the most powerful standard candles to date. The scatter of their Hubble diagram decreased steadily as it became possible: a) to remove non-type Ia SNe from the sample, b) to obtain good photometry of their magnitudes at maximum, many of which are due to a specific program at Cerro Tololo, c) to allow for the dependence of $`m_{\mathrm{max}}`$ on the decline rate of the light curve, — a correction which turned out to be smaller than originally proposed by Phillips (1993), and d) to correct for a dependence of $`m_{\mathrm{max}}`$ on the intrinsic color of the SN Ia (Tammann & Sandage 1995; Tripp 1998). Parodi et al. (2000) have compiled a complete fiducial sample of 35 blue SNe Ia, which fulfill the conditions $`(BV)^00.10`$ and $`1200<v<\mathrm{30\hspace{0.17em}000}\text{ km\hspace{0.17em}s}\text{-1}`$ (the lower limit is imposed to reduce the effect of peculiar velocities, the upper limit is to minimize the effect of $`\mathrm{\Omega }_\mathrm{M}`$ and $`\mathrm{\Omega }_\mathrm{\Lambda }`$). This sample allows to determine good dependencies of $`m_{\mathrm{max}}`$ on decline rate and intrinsic color. The resulting $`m_{\mathrm{max}}^{\mathrm{corr}}`$ in $`B`$, $`V`$, and $`I`$ define very tight Hubble diagrams (cf. Parodi et al. 2000). As an example only the Hubble diagram in $`V`$ is shown here (Fig. 1). The solution for the Hubble line, shown in the Figure, excludes the nine SNe Ia which have a Galactic absorption of $`A_V>0.^\mathrm{m}2`$ according to Schlegel et al. (1998). They appear to be somewhat bright and their absorption may be overestimated.

The very small scatter of $`\sigma _m=0.^\mathrm{m}12`$ in Fig. 1 could be entirely due to observational errors (in magnitude and color), to which peculiar velocities may contribute to some extent. The luminosity variation of homogenized, blue SNe Ia is therefore below the detection limit. Their unique rôle as standard candles and their insensitivity against Malmquist bias are unquestionable.

The conclusion is that SNe Ia open the golden route to the large-scale value of $`H_0`$ if “only” their absolute magnitude $`M^{\mathrm{corr}}`$ can be determined.

2) The advent of HST made it possible — as a pilot program had shown (Sandage & Tammann 1982) — that the required luminosity calibration of SNe Ia could be achieved. A special HST program was mounted with the aim of determining Cepheid distances of nearby galaxies which have produced a well observed SN Ia in the past. This has now led to the distances of seven standard SNe Ia, which were augmented by two additional objects from external sources. The data are compiled in Saha et al. (2001). The mean absolute magnitude of the nine SNe Ia, after correction for decline rate and color, becomes $`M_V^{\mathrm{corr}}=19.53\pm 0.06`$.

If this value is combined with the equation of the corresponding Hubble line, as shown at the bottom of Fig. 1, one obtains

$$H_0=56.9\pm 2.3.$$
(1)
Very similar solutions are obtained from the $`B`$ and $`I`$ magnitudes (cf. Tammann et al. 2001b). The value of $`H_0`$ could be increased by 1.6 units if the LMC distance modulus, i.e. the zero point of the Cepheid distance scale, were adopted to be 18.50, instead of 18.56 used here. It could also be increased by 1.3 units if all 35 SNe Ia were included in the solution. $`H_0`$ decreases by 0.8 units for an $`\mathrm{\Omega }_\mathrm{M}=1`$, $`\mathrm{\Omega }_\mathrm{\Lambda }=0`$ Universe. (Note the non-vanishing effect which $`\mathrm{\Lambda }`$ has already at $`v=\mathrm{30\hspace{0.17em}000}\text{ km\hspace{0.17em}s}\text{-1}`$).

An important feature of the present solution is that the calibrating SNe Ia and the distant sample of SNe Ia have the same absorption-corrected mean colors. Solutions which do not fulfill this condition betray an inconsistent treatment of the two sets.

Equation (1) reflects only statistical errors. The systematic errors are discussed by Saha et al. (2001) and Tammann et al. (2001b). The conclusion is that the systematic error of $`H_0`$ is $`<10\%`$, the slope of the magnitude dependence on decline rate and color contributing somewhat, but the main source of error being the Cepheid distances discussed in the next Section.

A note is here in place on the equally tight Hubble diagram from relative TF distances of clusters (Giovanelli et al. 1997; Dale et al. 1999; cf. Tammann, Reindl, & Thim 2001a, Fig. 2), where the cluster distances are based on the mean of about 15 subjectively selected spirals per cluster. The formidable problem is, however, how to calibrate the diagram. One possibility is to adopt the distance of one or more clusters. Sakai et al. (2000) have applied instead the local calibration of the TF relation (derived from known Cepheid distances) directly to the individual cluster galaxies, and have obtained a value of $`H_0=71`$. This procedure is of course invalid. It is well known that if one applies the TF calibration to only some bright members of the Virgo cluster or any other cluster, the mean distance becomes $`0.^\mathrm{m}4`$ smaller than from the complete cluster spiral population (Kraan-Korteweg, Cameron, & Tammann 1988, Fig. 6). This is a typical example of the Teerikorpi Cluster Bias effect (cf. Section 7). It is therefore obvious that the value of $`H_0`$ by Sakai et al. must be too high by roughly $`20\%`$.

The same objection holds against the calibration of the Hubble diagram of 11 clusters, whose relative distances are based on the mean D$`{}_{n}{}^{}\sigma `$ distances of a few cluster E/S0 members (Kelson et al. 2000). The additional problem is here that even the local calibration of the D$`{}_{n}{}^{}\sigma `$ relation is shaky because there is no early-type galaxy with a primary distance determination.

Purely physical methods leading directly to $`H_0`$, without using any astronomical distance for calibration, are steadily gaining weight. A combined solution of six gravitationally lensed double or multiple quasars yields for a $`\mathrm{\Lambda }`$CDM model a well constrained value of $`50<H_0<60`$ (Saha 2002). The physics of the light curve plateau of SNe of type IIP suggests values of $`54<H_0<65`$ (Hamuy 2001; Nadyozhin 2002). Lasenby (2002), summarizing the data from the Sunyaev-Zeldovich effect, concludes that $`H_0`$ is “sixtyish”. CMB fluctuations are compatible with the same estimate (Netterfield et al. 2002; Pryke 2002), but instead of determing $`H_0`$ from the CMB it should rather be used as a prior to confine other parameters of the early Universe (Durrer 2002). This is in fact the main motivation at present to determine as precise a CMB-independent value of $`H_0`$ as possible.

## 9 Back to the Beginnings

It was suggested (Freedman et al. 2001) that the absorption of LMC Cepheids, widely used as zero point for all Cepheid distances, had been overestimated so far and that Cepheids were intrinsically dimmer than anticipated; this would result in an increase of $`H_0`$ by $`6\%`$. This suggestion is not correct for long-period Cepheids (Tammann et al. 2001b), which are decisive for the luminosity calibration of SNe Ia, but the suggestion invited a closer look into the P-L and P-C relations of Cepheids in different galaxies.

The data for nearby Cepheids have dramatically increased in recent years. Berdnikov et al. (2000) have provided $`B,V,I`$ photometry for hundreds of Galactic Cepheids for which Fernie et al. (1995) have determined reddening values. Feast (1999) has compiled the distances of 28 Cepheids in Galactic clusters, and Gieren et al. (1998) have determined distances of 34 Galactic Cepheids by means of the Baade-Becker-Wesselink method. Udalski et al. (1999a, b) have published periods and magnitudes in the standard system, obtained in the course of the OGLE program, for many hundreds of fundamental-mode Cepheids in LMC and SMC as well as their consistent $`E(BV)`$ values.

The analysis of this wealth of data is still in progress, but it is already clear that the P-L and P-C relations are different in different galaxies. In LMC neither the P-L nor the P-C relation can be fitted by a single slope (Tammann et al. 2001b), whereas the steep Galactic P-L relation shows no deviation from linearity. Cepheids in LMC are up to $`0.^\mathrm{m}5`$ brighter at $`\mathrm{log}P=0.4`$ than their Galactic counterparts (somewhat dependent on the adopted distances), but the difference diminishes towards longer periods. It is a lucky coincidence that the Galactic and LMC P-L relations cross at $`\mathrm{log}P1.5`$ and that this is about the median period of the SNe Ia-calibrating Cepheids. But the choice of any specific P-L relation may influence the resulting absorption-corrected distance of external galaxies by up to $`10\%`$.

A distance-independent comparison of the Cepheids in the Galaxy, LMC, and SMC is afforded by their mean position in the color-color diagram (Fig. 2). It cannot entirely be excluded that the (large) Galactic $`E(BV)`$ values are underestimated and that the Galactic Cepheids should be slid closer to the LMC Cepheids along the reddening line, but the fact that Cepheids in SMC at a given period are bluer in $`(BV)^0`$ and redder in $`(VI)^0`$ than those in LMC cannot be the result of incorrect reddenings. If the P-C relations are not universal then it follows by necessity that also the P-L relations must be different, at least at some wavelengths.

It comes as a surprise that the largest single source of systematic errors, which affect the luminosity calibration of SNe Ia and hence the large-scale value of $`H_0`$, is due to the intrinsic difference of Cepheids in different galaxies. Of course, all other distance determinations which are calibrated through Cepheids face the same problem. At present it is not known which parameter decides on the specific form of the P-L relation, but metallicity is a prime suspect. If this is so, and considering that the mean metallicity of the SNe Ia-calibrating galaxies is roughly $`\text{[Fe/H]}=0`$, one should prefer the Galactic over the LMC P-L relation. In that case the galaxy distances, based on long-period Cepheids, would tend to increase.

It is a long-range program of the future to trace accurate P-C and calibrated P-L relations in a variety of nearby galaxies, to understand the physics of their being different, and then to decide about their applicability to more distant galaxies. It may take the astrometric distances from GAIA to calibrate the various P-L relations for further use as distance indicators. At present it is prudent to attribute a systematic error of at least $`5\%`$ to the value of $`H_0`$, accounting for only the intrinsic difference of Cepheids.

## Acknowledgments

The authors thank Dr. A. Sandage for the permission to use his manuscript on the history of the Mount Wilson Observatory. They thank the Swiss National Science Foundation for financial support.


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# Exclusion particle models of limit order financial markets

## 1 Introduction

While physicists involved in academic research on financial markets have focused on the analysis and modelling of time series such as stock market prices or indices , limit order markets are addressed by economists in terms of market micro-structure . In such markets, traders can publish their wish to buy/sell a given quantity of stock at a given price, that is, place a limit order. Most of the time, there is no order of the opposite type at that price, and the limit order stays in the order book until it is cancelled or matched by another order of the opposite type at the same price. An order that causes an immediate transaction, as in the last example, is called market order. One of the most interesting aspects of these markets is the interplay between price dynamics and order dynamics. Whereas economists have studied and characterised many important aspects of these markets , such as why traders would like to use them after all , and produced models with stochastic order placement (see for instance ), physicists prefer to consider orders as particles, thinking of size as mass and price as spatial position; the price evolution merely results from stochastic dynamics: it follows a kind of random walk, hence is not assumed to be fixed or bounded in contrast with other models . Data analysis performed in  shows that in the language of physics, limit order markets are out-of-equilibrium, that is, there are similar to a bucket of water heated by a campfire and filled by an irregular shower. There are two families of nonequilibrium particle models of such markets, one that assumes that orders diffuse on the price axis  and another one where orders can be placed, executed  and cancelled . There is evidence from market data that orders do not diffuse on the price axis, but are placed, and then executed or cancelled with time dependent rates . This begs for a non-equilibrium model made up of these three processes . So far, all models have assumed constant rates. Here we show that this assumption is responsible for very unrealistic price behaviour, and that lifting this assumption leads to the correct behaviour.

It is well documented that stock and foreign exchange prices are over-diffusive over several months : if the (log)-price $`p_t`$ followed a standard random walk, its increments (or returns) would be such that $`p_\tau p_0\tau ^H`$ with $`H=1/2`$; $`H`$ is called the Hurst exponent. Generally speaking, $`H`$ depends on $`\tau `$. For instance, real prices are reportedly over-diffusive ($`H>1/2`$) for several months, and then tend to be diffusive ($`H=1/2`$) for larger time lags . Over-diffusion implies some sort of long-term memory. This behaviour is not captured in the current particle models. On the contrary, $`H=1/4`$ for all times in models where no cancellation of orders is allowed . It has been realised that order cancellation is needed in order to obtain a crossover to diffusive price for large time lags . On the other hand, over-diffusive behaviour is obtained when price trends are introduced, that is, when the price has a temporary tendency to rise or decrease, as in the model of Ref. , which has $`H=2/3`$ for all times, when no order cancellation is allowed, and a crossover to $`H=1/2`$ when it is. Here we generalise the notion of trends introduced in , and study their influence on the Hurst exponent and the return correlation function.

Nonequilibrium particle models are notoriously hard to tackle analytically, and limit order market models are no exception. Therefore one ought to study first the simplest models of this kind, namely exclusion models , where at most one order is present at each tick. Recent work in nonequilibrium statistical mechanics shows that some of these particle models can be exactly solved  (see  for a review). Exclusion is naturally found when there are so few orders that it is unlikely to find two orders at the same tick, which is also the limiting case where Ref  obtained analytical results concerning order densities in a class of models introduced in . Beyond this seductive mathematical aspect, exclusion models are arguably relevant for the modelling of limit order market. Indeed, priority of execution is given to orders first by price and then by chronological order of their deposition. This is particularly important near the best prices, when impatient traders are likely to be willing to take precedence over their colleagues. Therefore exclusion models of limit order markets capture at least some part of the dynamics near the bid-ask spread, which plays a major role in these markets, particularly when there is no market maker. Another interpretation of the exclusion condition is that it encodes the presence or absence of quotes at a given tick and neglects the actual number of shares.

In short, the exclusion hypothesis is a way to reduce the dimensionality, hence the complexity, of limit order market models, while keeping their collective character. Here we transform the particle model found in Ref.  by identifying processes in real markets into an exclusion model.

## 2 Definition of the model

Two types of orders, ask ($`A`$) and bid ($`B`$), also denoted by $``$ and $`+`$ and corresponding respectively to sell and buy orders, live on a semi-infinite line — the price whose unit is the tick. As limit orders are a way of storing demand and offer, it is clear that all bid orders are found on the left of the ask orders. At time $`t`$, there are $`n_i(t)\{1,0,1\}`$ orders on site $`i`$, where $`1`$ denotes the presence of an ask order and $`1`$ the presence of a bid order. We denote by $`b(t)`$ the position of best bid price and $`a(t)`$ the position of the best ask price. The last paid price $`p(t)`$ is the position where a transaction last took place. All quantities of interest depend on these last three quantities. For instance, the bid-ask spread is the gap that separates the best bid from the best ask; here we denote it by $`s(t)=a(t)b(t)1`$. We do not consider any mechanism which would ensure the positivity of the price, since we aim to study normal price dynamics; we argue that special mechanisms arise in real markets when the price reaches very low prices.111There is technical reason to justify this assertion at least on the NASDAQ: a stock is unlisted from the NASDAQ if its price stays for too long under 1$ (see www.nasdaq.com). This is a motivation for the company to weigh on its stock price. We assume that all processes occur relative to the current best prices, that is, relative to $`a(t)`$ for asks and $`b(t)`$ for bids. At each time step $`t`$, three different events can happen: a new order of each type (bid+ask) is placed, a market order of each type is placed, and some orders are cancelled. Mathematically,

1. with probability $`\delta _a`$, a new ask order is placed into the bid-ask spread. Its price $`a(t)\mathrm{\Delta }`$ ($`\mathrm{\Delta }>0`$) is randomly drawn according to some distribution probability $`P_a(\mathrm{\Delta })`$. With probability $`\delta _a^{}`$, another ask order is deposited on the right of the current best price at $`a(t)+\mathrm{\Delta }^{}`$, where $`\mathrm{\Delta }^{}>0`$ is randomly drawn from $`P_a^{}(\mathrm{\Delta }^{})`$. Idem for bids: an new order is placed in the spread with probability $`\delta _b`$ at $`b(t)+\mathrm{\Delta }`$, where $`\mathrm{\Delta }`$ is taken from $`P_b(\mathrm{\Delta })`$. With probability $`\delta _b^{}`$, a new order is placed at a lower price that $`b(t)`$, that is, at $`b(t)\mathrm{\Delta }^{}`$ where $`\mathrm{\Delta }^{}`$ is drawn from the probability distribution function (pdf) $`P_b^{}(\mathrm{\Delta }^{})`$. There can be at most one order per site, hence, if there is already a particle at $`b(t)\mathrm{\Delta }^{}`$, or at $`a(t)+\mathrm{\Delta }^{}`$, nothing happens.
2. Each particle has the same fixed probability $`\eta `$ to be cancelled.
3. With probability $`\alpha _a(t)`$ a market order eats the best ask order located at $`a(t)`$ and with probability $`\alpha _b(t)`$ the bid order at $`b(t)`$ is executed.
4. Rates change according to predefined rules (see below).

Deposition and market orders in particle limit order market models can be found in Ref. , cancellation was introduced in Ref.  and in Ref.  in a different context; its main role is to ensure that the total number of orders does not diverge with time. Note that $`P(\mathrm{\Delta })`$ has a major influence on the bid-ask spread dynamics; the average typical deposition position conditional to the bid-ask spread depends linearly on the spread in real markets , which we denote by $`\mathrm{\Delta }^2|s(t)^{1/2}=c_0+c_1s(t)`$, where $`.`$ denote a temporal average. This can be explained for instance by buy orders that are placed at $`b(t)+s(t)/2`$, or very close to the best ask order, e.g. at $`a(t)1`$. Playing with $`c_0`$ and $`c_1`$ modifies the spread dynamics. For instance, if $`c_0>0`$, $`c_1=0`$, there is no feed-back of the spread on the width of deposition; if $`c_1>1`$, the contribution of cross-deposition to market orders cannot be neglected. Finally, if $`c_0=0`$ and $`c_1>0`$, the cross-deposition rate is constant.

Several simplifying hypotheses will be made here: we will assume that all deposition pdfs are equal, that is, $`P_a=P_b=P_a^{}=P_b^{}`$, and Gaussian. This contrasts with empirical facts that $`P^{}(\mathrm{\Delta })`$ is a power-law over two decades of ticks in the Paris Bourse  in the London Stock , and in the NASDAQ , which implies that the probability of far deposition is non-negligible. In addition, the cancellation rate of a given order has a power-law dependence on its position relative to the best order, $`\eta (\mathrm{\Delta })\mathrm{\Delta }^\nu `$ with $`\nu 2`$ , which is consistent with the functional form of the lifetime distribution previously reported : here, this dependence is neglected.

In real markets, rates are not fixed, but vary wildly during any trading day. Moreover, we see no practical reasons why the rates should obey a balance equation such that the expected price drift is zero at all times, as it is assumed in all current models, except that of Ref. . On the contrary, heterogeneity of market participants is probably enough to argue that rates should be balanced only on average. As a first approximation, we assume here that they are independent from each other. As we shall see, this provides a universal mechanism for mid-term over-diffusive prices. We study several alternative simple rules that stipulate how to change the rates, depending on the quantity to be computed:

1. At each time step, with probability $`p`$, all rates are redrawn independently at random. The Hurst exponent is then very easy to compute.
2. At each time step, each rate is redrawn with probability $`p`$. This is also appropriate for the computation of the Hurst exponent.
3. Rates are linearly cross-correlated, that is,

$`\alpha _a(t)=\alpha _0+\alpha _1\sigma (t)`$ $`\alpha _b(t)=\alpha _0\alpha _1\sigma (t)`$ (1)
$`\delta _a(t)=\delta _0\delta _1\sigma (t)`$ $`\delta _b(t)=\delta _0+\delta _1\sigma (t),`$ (2)
where $`\sigma (t)=\pm 1`$ is the only quantity that is changed with probability $`p`$ at each time step. It defines the direction of trend. This setup makes it easy to compute the autocorrelation function and the properties of the bid-ask spread.
4. Same as rule (iii), with the additional constraint that $`\alpha _0=\alpha _1`$ and $`\delta _0=\delta _1`$. In this case, market orders occur at one side, and order deposition at the other.
5. Same as rule (iv), but the direction of the trend $`\sigma (t)`$ is allowed to change only when the bid-ask spread is zero .

In rules (i-iv) the probability of rate change at each time step is constant. This sets the typical lifetime of a set of rates to $`1/p`$, and that rates are exponentially cross- and auto-correlated, whereas this dependence should be algebraical . Rule (v) relates trend changing to the actual properties of the bid and ask distribution. Other similar rules could also be studied, for instance by relating probabilistically the trend to volume imbalance between the two distributions. However, rule (v) is most appropriate for mathematical analysis.

## 3 Bid-ask spread properties

Here we derive basic results about the bid-ask spread. We assume that the width of order deposition does not depend on the bid-ask spread ($`c_1=0`$), and that the price of new orders new prices $`a(t)1`$ and $`b(t)+1`$, that is, $`P(\mathrm{\Delta })=\delta _{\mathrm{\Delta },1}`$ where $`\delta `$ is the Kronecker index. Finally, we neglect cancellation, whose role is less crucial in exclusion models, as the exclusion condition itself limits the total number of orders. The last two assumptions imply that after a transient , the order density is uniform and equal to $`1`$ for $`p<b(t)`$ and $`p>a(t)`$.

As long as the rates are fixed, the best ask evolution is the following: $`P[a(t+1)=a(t)+1]=\alpha _a`$, and $`P[a(t+1)=a(t)1]=\delta _a`$, hence $`a(t)`$ follows a biased random walk (RW) with drift $`\alpha _a\delta _a`$. The same applies to $`b(t)`$, with a drift of $`\delta _b\alpha _b`$, hence the mid-price, defined as $`m(t)=(a(t)+b(t))/2`$, diffuses with an average drift $`(\alpha _a+\delta _b\alpha _b\delta _a)/2`$. The evolution of the spread $`s(t)`$ is also a biased RW, with drift $`v=\alpha _a+\alpha _b\delta _a\delta _b<0`$. Since $`s(t)0`$, the spread undergo a biased RW with reflective boundary at $`s=0`$. Several properties of $`s`$ can then be easily computed. For instance the pdf of the time during which $`s>0`$ is given by the first passage at $`s=0`$ of a particle starting at $`s_0`$

$$F(t)=\frac{s_0}{\sqrt{4\pi Dt^3}}\mathrm{exp}\left[\frac{(s_0+vt)^2}{4Dt}\right].$$
(3)
where $`D`$ is the diffusion constant. In particular, when $`v0_{}`$, $`F(0,t)t^{3/2}`$. For any $`v<0`$, it is well known that the pdf $`P(s,t)`$ of random walks with reflective boundary tends to a stationary state that is exponentially decreasing

$$P(s)=\frac{|v|}{D}\mathrm{exp}(|v|s/D)$$
(4)
and $`\overline{s}=D/|v|`$, where $`\overline{.}`$ denotes an average over $`P(s)`$.222In continuous space and time, $`P(s,t)`$ is indeed the solution of the diffusion equation $`D^2P/s^2=|v|P/t`$. As shown by these equations, the spread properties only depend on $`v`$ and $`D`$, provided that $`v`$ and $`D`$ remain constant long enough.

Rules (iii), (iv) and (v) for rate change are such that the change of trend $`\sigma (t)`$ has no influence on the dynamics of $`s(t)`$, as $`v`$ and $`D`$ are independent of $`\sigma (t)`$, therefore the above equations are always valid in this case. In particular, rule (iv) makes the spread dynamics a one-step process for $`s>0`$:

$`{\displaystyle \frac{dP(s)}{dt}}`$ $`=`$ $`[(1\delta )(1\alpha )+\alpha \delta ]P(s)`$ (5)
$`+\delta (1\alpha )P(s+1)+(1\delta )\alpha P(s1)`$
Note that for $`s=0`$, any deposition is in fact a cross-deposition, hence the effective annihilation rate $`\alpha _{\mathrm{eff}}`$ equals $`\alpha +\delta `$. Eq. (5) shows again that the spread process is equivalent to a biased RW with reflective boundary at $`s=0`$; its drift is $`v=\alpha \delta <0`$, and its diffusion constant $`D=[\alpha (1\alpha )+\delta (1\delta )]/2`$. If order cancellation is allowed, the 0-th order correction to the above picture is $`\delta \delta \eta `$ and $`\alpha \alpha +\eta `$, hence $`vv2\eta `$.

## 4 Hurst exponent

The Hurst exponent $`H`$ depends in general of $`\tau `$ in our model. Irrespective of the considered rule for the update of the rates, the price is over-diffusive ($`H>1/2`$) for intermediate $`\tau `$ and diffusive ($`H=1/2`$) for large $`\tau `$. For rules (i)-(iv), the crossover between $`H>1/2`$ and $`H=1/2`$ occurs for $`\tau 1/p`$. When rule (v) is applied, it occurs for $`\tau `$ of the order $`𝑑tF(0,t)t`$. The small $`\tau `$ behaviour depends on the rule and on the parameters, as discussed below.

### 4.1 Rule (i)

The simplest setup for computing the Hurst exponent $`H(\tau )`$, is to change the rates according to rule (i). For a given set of rates $`\alpha _a`$, $`\alpha _b`$, $`\delta _a`$, $`\delta _b`$, the average speed of the mid-price $`m(t)`$ is $`v=\alpha _a+\delta _b\alpha _b\delta _a`$. Neglecting the diffusion of the mid-price, and retaining only its ballistic motion, one readily computes $`r(t+\tau )r(t)(1p)^\tau `$. Therefore, after a summation,

$$(p_{t+\tau }p_t)^2=(\underset{t^{}=1}{\overset{\tau }{}}r_{t+t^{}})^2\tau +\frac{2(1p)}{p^2}\left[p\tau 1+(1p)^\tau \right],$$
(6)
Figure 2 shows that Eq (6) describes adequately the price behaviour for large $`\tau `$. The discrepancy observed for small $`\tau `$ is probably due to bid-ask spread bouncing and other diffusive behaviours that we neglected. Note that when the deposition rates are close on average to the market order rates, a sub-diffusive behaviour appears for small times. This general behaviour is due to spread bouncing, as in this case, the spread is typically large. It appears for all rules where frequent spread bouncing is allowed, owing to the possibility of having simultaneous market orders at both sides, that is, rules (i), (ii) and (iii).

### 4.2 Rule (ii)

Rule (ii) is arguably more realistic than rule (i). While it leads to essentially the same behaviour, the calculus is more complicated and of no special interest for our purpose.

### 4.3 Rule (iii)

Fig. 3 shows that, similarly to rule (i) and (ii), if $`p`$ is small enough, the price is under-diffusive, then over-diffusive, and tends to be diffusive at large times. Since the duration of the over-diffusive part is related to $`1/p`$, when $`p`$ is too large, the price cannot develop its over-diffusive behaviour. Note that the crossover from $`H>1/2`$ to $`H=1/2`$ has the same characteristic form as in Figs 2 and 4.

### 4.4 Rule (iv)

In the case of Rule (iv), the price follows a persistent RW , that is, the probability that $`r(t+1)=r(t)`$ is equal to $`1p`$, where $`p`$ is the probability of trend reversal. Therefore, the over-diffusive behaviour of our model can be qualitatively explained by mapping the price increments ($`\pm 1`$) to an unidimensional (nearest neighbour) Ising spin model where the space plays the role of the time. A spin is a variable that can take two values $`1`$ and $`+1`$ (think of a price increment). The unidimensional Ising model consists in placing a given number of these on a line, and to assuming that spin at site $`i`$ is only influenced by its neighbours, that is, the spins at sites $`i+1`$ and $`i1`$ (see  for more information). The mapping is possible, because the market model we consider is Markovian. Generalising known results for such models to our case where the price jumps over the spread when the trend reverses, whose effect turns out to be negligible for large $`\tau `$, we find when $`p`$ is small and $`s1/p`$ that for large $`\tau `$,

$$[p(t+\tau )p(t)]^2\alpha ^2\left[\tau +\frac{\tau (1p)}{p}\mathrm{tanh}[\tau p/(1p)]\right]\tau 1$$
(7)
which indicates a continuous crossover between $`H(\tau )=1`$ for small $`\tau `$ and $`H=1/2`$ for large $`\tau `$. However, the crossover appears visually to occur in a small time window. The mapping between the market and Ising models gives good results, even for small $`\tau `$.

### 4.5 Rule (v)

This rule also gives rise to a persistent RW, hence to the same results as those of rule (iv).

## 5 Price autocorrelation

In this section, we study how the price increments autocorrelation function $`C(\tau )=r(t+\tau )r(t)`$ depends on the rule of rate changes and on the chosen parameters.

### 5.1 Rule (iv)

Suppose that the probability of trend reversal is equal to $`p`$ at each time step. Neglecting the effect of cross-deposition when $`s=0`$, we find

$`C(1)C_0(1)`$ $`=`$ $`\alpha ^2[(1p)^2p(1p)(1\delta )`$ (8)
$`p^2(s^2+s(1\delta ))].`$
As soon as the influence of spread bouncing is greater than that of annihilation, $`C(1)<0`$. This is to be related to one known possible cause for negative $`C(1)`$, spread bouncing , although here it only happens whenever the trend $`\sigma (t)`$ changes. When $`P_s(0)`$ is not negligible, Eq (8) must be corrected: a transaction takes place if a market order is placed ($`\alpha `$), or a market order is deposited onto the best opposite order ($`\delta `$) (cross-deposition). If both happen during a time-step, we assume that annihilation occurring before and after deposition are equally likely. We finally find

$`C(1)`$ $``$ $`(1P_s(0))C_0(1)`$ (9)
$`+P_s(0)\{(1p)^2\alpha [\alpha +\delta (1\alpha /2)(1+\delta /2)]`$
$`+p(1p)[\alpha ^2\delta /2\alpha (\alpha +\delta +\alpha \delta ^2/4)]p^2\alpha \delta ^2\}`$
Figure 5 shows that numerical simulations are in good agreement with Eq (9). Note that for this figure we used values of $`P_s(0)`$, $`s`$ and $`s^2`$ directly taken from the simulations, as the continuous approximation for $`P_s`$ breaks down for typically small spreads. In the right panel, the typical spreads is very small and $`C_0(1)`$ is not a good approximation to $`C(1)`$. Eq (9) relates the price increments autocorrelation function to the average spread and the second moment of the spread, hence, can be seen as a generalisation of the seminal result of Ref , and is related other works .

### 5.2 Rule (iii)

Simultaneous transactions on both sides of the market are an additional source for short term negative return autocorrelation. Results of the previous subsection can be generalised to this case: the spread dynamics is described by a two-step process, which is again equivalent to a biased random walk with reflective boundary at $`s=0`$, and $`C(1)`$ can be calculated, but leads to expressions too long to be reported here.

### 5.3 Rule (v)

Ref.  studies a particle exclusion market model where the order diffuse toward best prices and the rates are changed according to rule (v). According to the previous section, the trend duration pdf in this model is given by Eq (3) (see also Fig. 1); in addition, the rates are tuned so as to ensure that $`v=0`$. Therefore the trend duration has no definite average, which explains intuitively why without order cancellation the price is always over-diffusive in this model; on the other hand, when order cancellation is allowed, the effective rates have to be corrected; this yields an effective $`|v|=2\eta >0`$, which is the origin of the crossover to diffusive prices observed in this case. Because this rule does not allow spread bouncing, the absolute value of price increments is 0 or 1, and the sign of the increment stays constant for a duration $`F(l)`$ that is given by Eq (3). According to Ref. , the increment autocorrelation $`C(\tau )`$ of such processes is the inverse Laplace transform of

$$\widehat{C}(s)=\frac{1}{s}\left[12\frac{1\widehat{F}(s)}{sl(1+\widehat{F}(s))}\right]$$
(10)
where $`F(l)`$ is the pdf of trend duration $`l`$. Unfortunately, $`\widehat{C}(s)`$ cannot be inverted for $`F`$ given by Eq (3). However, one can argue from this equation that for $`\tau `$ small enough, $`C(\tau )\tau ^{1/2}`$, following Ref. . Another possibility is to consider a standard biased RW starting from $`s_0`$ and compute the probability that $`s(t)<0`$, neglecting the effects of the reflective boundary, which leads to

$$r(t)r(t+\tau )=12P[r(t)=r(t+\tau )]\mathrm{erf}\left[\frac{v\tau +s_0}{\sqrt{2D\tau }}\right]$$
(11)
where the last approximation is valid as long as $`v\tau +s_00`$, that is, as long as the spread is not likely to have reached the reflective boundary. When $`\tau `$ is such that $`\frac{v\tau +s_0}{\sqrt{2Dt}}1`$, that is $`\tau 2D/|v|`$, $`r(t)r(t+\tau )\tau ^{1/2}`$, with a cutoff at $`t2D/|v|`$. Note that this result is exact if $`v=0`$, and gives $`r(t)r(t+\tau )\tau ^{1/2}`$ for $`\tau s_0^2/2D`$, in agreement with Ref . The problem of this approach is that it gives positive autocorrelation for all times, whereas it is negative at short times in real markets .

## 6 Price increment distribution

All rules, except rule (v), lead to the same kind of price increment pdf, which is made up of one part that is due to consecutive market orders on the same side, and another that is due to spread bouncing (the price pdf produced by rule (v) lacks the spread bouncing part). This implies that when the rates are constant, the tails of $`P(r)`$ are given by that of the spread pdf, which decreases exponentially in that case. In other models, found e.g. in Refs , the pdf of the spread is fat-tailed, hence that of the prices as well, which is arguably artificial, since the mid-price increments $`m(t)`$ are also fat tailed in real markets .

It is possible to obtain a more refined pdf of the trends. Up to here we essentially considered constant rates, which lead to exponential tails. Time varying rates is the key to obtain fat tailed return pdf in these models: the mid-spread point $`m`$ moves indeed at average speed $`\frac{(\delta _B\alpha _B)+(\alpha _A\delta _A)}{2}=(\alpha _0+\alpha _1+\delta _0+\delta _1)\sigma `$. The rates are in principle not bounded, as it is easy to generalise our model to include multiple order depositions/annihilations during a time step. In this case, they indicate the average number of events during $`\mathrm{\Delta }t=1`$ of a Poisson process. Their distribution is related: about 10% of deposited orders are matched in the London Stock Exchange  as well as in the ISLAND ECN (www.island.com), a subpart of the NASDAQ , hence one can consider the deposition rate as proportional to the annihilation rate in a first approximation. $`P(r)`$ has fat tails as soon as $`P(\alpha )\alpha ^\gamma `$. According to Ref. , this is the case, with an exponent of about $`3.5`$. In addition, the autocorrelation of all the rates was found to be algebraically decaying , which also shows up in that of the number of transaction in a given time interval . We shall explore further this generalisation in a forthcoming publication.

## 7 Average densities

Two recent papers  have focused on the average densities of orders relative to the best prices. In both cases, these were found to have power law tails. The model of Ref.  and its exclusion version, i.e. the model proposed here with spread-feedback, are able to reproduce this behaviour (see fig 6);333One can even simplify further the exclusion model by replacing one of the two order distributions by a wall, still obtaining this result. $`B(\mathrm{\Delta })`$ is very well fitted with the functional shape $`(1+ax)^b`$ with $`b2.03`$, very close to $`2`$. This gives a market impact exponent of $`1/2`$, which was measured in real markets, as reported Ref . Note that the model of Ref.  also gives the same exponent: this model can be seen as a special case $`c_1=1/\sqrt{2}`$, $`c_0=0`$ of Ref. , with a flat spatial probability distribution of deposition; in particular, spread-feedback is present ($`c_1>0`$), which seems to be necessary for obtaining densities with power-law tails.

Interestingly, the functional shape of the average densities is the same as that of the price in these models. In fact, it is also the same as that of the spread, a general feature of market models with constant rates, as explained above. This last feature is probably very unrealistic, as the pdf of the spread is most likely exponential in real markets. Nevertheless, this can be easily explained. Suppose that the spread pdf has power tails, then order deposition pdf has fat tails, hence, according to the argument developed in ref , the average densities have power-law tails. In addition, as before, when the rates are constant, the tails of the price pdf are due to spread bouncing, hence are also fat. In conclusion, in this type of models, the spread, the price and the densities have all the same type of pdf. But as argued above, fat tailed return should be obtained by modulating the rates. Note that the model of Ref.  produces power-law tails for the densities by considering power-law distributed relative positions for bulk deposition, which is consistent with empirical findings.

## 8 Conclusions

The simplest particles models of limit order markets are exclusion models and provide an ideal framework for mathematical analysis. We argued that particle models of limit order market should include time-varying rates, and that the balance of rate only holds on average, and is a crucial feature of these markets, explaining mid-term over-diffusive price behaviour. We introduced several rules for time varying order deposition and market order rates and characterised the bid-ask spread properties, computed Hurst plots and correlation functions. The effects of order cancellation and more general probability distributions of rates will be addressed in the future.

This work was supported by EPSRC under Oxford Condensed Matter Theory grant GR/M04426. We thank G. M. Schütz for seminal discussions.