Jack, an equity researcher working at mLTD hedge fund, has developed a new way of measuring earning quality (EQ) of 100 companies in one of emerging markets located in Asia. Kim Deal forms 10 portfolios based on EQ, constructs a zero-cost portfolio (HML_EQ), and finds spectacular $ average returns on HML_EQ, which cant be explained by CAPM and the Fama-French three-factor model.

However, many financial economists have proposed that such returns on HML_EQ from international investment can be still considered to be a reward for taking systematic risks (i.e., risk premia).

Critically evaluate this contention of financial economists on HML_EQ with reference to appropriate theories and empirical evidence/methods.