This paper investigates the effect of credit default swaps (CDS) on foreign direct (FDI) and portfolio investments (FPI) by using quarterly observations during the period 2005Q4-2019Q3 in Turkey. The findings indicate the changes in CDS correlate negatively with the FDI and FPI while the correlation coefficient between the last two variables is significantly positive at the 1% level. The changes in FDI Granger-cause the movements in CDS with no reverse direction. The test, however, detects a bidirectional causal relationship between the changes in FPI and CDS. The results yield important implications for sustainable financial stability and economic growth for policymakers.