Anecdotally, both my children slept like that, I believe it's fairly common.
One claim I've found online was that "over 90% of babies sleep with their arms up around their head when placed on their back to sleep. This is simply a baby’s natural and preferred way to sleep, just like in the womb!" (It was a product page, and the claim was uncited, so I don't think it warrants linking to, but the quote should be searchable if you want a reference)
I've often heard it said that this is a sign of a contented baby, but I have not been able to find any facts confirming that. If the 90% figure is accurate, that explanation may well own its popularity to the fact that it's comforting to parents, rather than to its truth value.
Besides the "contented" explanation, I've also come across claims that:
- It is similar to the baby's position in the womb (above)
- It is a mechanism for cooling off, as opposed to sleeping with their arms alongside their bodies
- The baby has been startled (see the Moro reflex)
None of which I've been able to find any evidence confirming. The moro reflex is a real thing, but seems like a far fetched explanation for a persistent sleeping position, mostly pushed by websites selling swaddlers. To me, the other two explanations appear more plausible at face value.