Markowitch Modern Portfolio theory is undeniably the most famous portfolio
approach to diversify risks that investors face in investing their money. This
portfolio construction approach may be effective to diversify investment’s risks.
However, Markowitch Modern Portfolio Theory only diversifies unsystematic
risks. In other hand systematic risks tend to be ignored. One of the systematic
risks that investors face is inflation. Inflation reduces investment return, which
resulted in investors’ loss. The immense effect of inflation to the investment
shows that new approach in constructing portfolio is essentially needed. Based on
that fact, this research was conducted with several objectives, they are: (1) To
analyze inflation hedging ability of Indonesia equity instruments using inflation
beta approach, (2) To examine effect of inflation beta approach on risk and return
of portfolios, (3) To investigate effect of inflation beta approach on portfolios’
performance. (4) To explore future representativeness of inflation beta approach
with the construction of ex- ante portfolio.