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I am coming from a machine learning/time series forecasting background and are currently studying Asset Pricing.

I have a good understanding of what Markowitz Mean-Variance Optimization (MVO) does, and have read that CAPM results directly from MVO and it's hypotheses e.g. the Efficient Market Hypothesis (EMH).

So given that CAPM assumes EMH(i.e. that assets are correctly priced), in what sense are stocks above/under the Security Market Line considered underpriced/overpriced?

In my current understanding this seems paradoxical: If its common knowledge that EMH holds and that investors use MVO, then as a consequence, CAPM becomes true and negates EMH (because there are now overpriced/underpriced stocks).

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