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The purpose of the paper is to investigate the relationship between sovereign Credit Default Swap (CDS) and stock markets in nine emerging economies from Central and Eastern Europe (CEE), using daily data over the period January 2008–April 2018. The analysis deploys a Vector Autoregressive model, focusing on the direction of Granger causality between the credit and stock markets. We find evidence of the presence of bidirectional feedback between sovereign CDS and stock markets in CEE countries. The results highlight a transfer entropy of risk from the private to public sector over the whole period and respectively, from the public to private transfer entropy of risk during the European sovereign debt crisis only in Romania and Slovenia. Another finding that deserves particular attention is that the linkage between the CDS spreads and stock markets is time-varying and subject to regime shifts, depending on global financial conditions, such as the sovereign debt crisis. By providing insights on the inter-temporal causality of the comovements of the CDS–stock markets, the paper has significant practical implications for risk management practices and regulatory policies, under different market conditions of European emerging economies. [ABSTRACT FROM AUTHOR]