<p class="MsoNormal" style="text-align: justify; margin: 0in 0.6in 0pt 0.5in;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">Research in economics and finance has documented a negative relationship between stock returns and inflation rates in most economies.<span style="mso-spacerun: yes;">&nbsp; </span>The purpose of this study is to investigate this relationship for a particular specific sector investment, air transportation. A significant negative relationship is shown between the air equity index returns and unexpected inflation.<span style="mso-spacerun: yes;">&nbsp; </span>Air equity returns, however, are found not be correlated with expected inflation.<span style="mso-spacerun: yes;">&nbsp; </span>The Johansen and Juselius cointegration tests verify a long-run equilibrium between air transport equity index, general price levels, and the real economic activity. The short-run dynamics derived from the error-correction model, however,<span style="mso-spacerun: yes;">&nbsp; </span>do not support air transport equity index&rsquo;s long-run inflation hedging ability. These findings indicate that investing in air transport equity index may not be a reliable hedge against inflation in the long- or short-run.<span style="mso-spacerun: yes;">&nbsp; </span>In addition, the findings do not lend support for the Fisherian and Proxy hypotheses.<span style="mso-spacerun: yes;">&nbsp;&nbsp; </span></span></span></p>