The interactions between the Mib30 stock market index and its future contract are examined. Using daily data for the 1994–2002 period, it is found that the cost-of-carry model holds as an equilibrium relationship between spot and futures prices. Deviations from equilibrium are corrected by movements in the spot market, but cross-market dynamics are also important in the short run. We model the time varying volatility of daily returns’ as an autoregressive conditional heteroscedastic process; this model used to estimate minimum-variance hedge ratios. In- and out-ofsample comparisons with static hedging show that, by carefully choosing the ARCH specification, a significant improvement in variance reduction can be achieved.