Does frequent cross-industry portfolio rebalancing by mutual funds introduce vulnerability into stocks?

Does the behaviour of mutual fund managers chasing hot trends and frequently rebalancing across industries introduce vulnerability into the corporate stocks? To address this issue, we create a novel stock-level potential vulnerability measure based on the cross-industry rebalancing magnitude of mutual funds holding the stock. We find that stocks bearing higher vulnerability subsequently experience higher crash risk. Fund style drift and fund illiquidity cannot account for our findings. Further analysis suggests that this positive effect is primarily realized through channels such as delaying the integration of negative corporate information into prices and boosting price bubbles.