This thesis attempts to test the hypothesis that the common stocks in Korean Stock Market act as a hedge against inflation. Before the test is conducted, theoretical background was reviewed.
Hedge was defined as not having negative regression coefficients between the real rates of return and the real rate of inflation. The two forms of the hedge, passive hedge and active hedge, were defined and tested.
Passive hedge was empirically tested by the regression method which regress the various rates of inflation on the real rate of return of the market portfolio. These various rates of inflation are the rates of inflation, expected inflation, and unexpected inflation.
Active hedge was also tested by the simple regression method. At this time, the dependent variable is the real rate of return of the hedge portfolios which were constructed with the common stocks of the Korean Stock Market.
The results indicate that the hedging potentials of the passive hedge, which uses the market portfolio, do not exist and that the hedging potentials of the active hedge, which employ the hedge portfolios, are fully operative.
