I find it very peculiar that someone has decided that raising the hands to the embracing the tree position is healthy, when at start it might feel very uncomfortable and painful.
No one knows the origin, but the Daoists have practiced it as far back as their history is recorded.
Zhan Zhuang, or "Embrace the Tree/Moon", is based on qigong/acupuncture theory. It is not a random choice, but based on the energetic structure of the body.
The acupuncture point GV14 (dazhui) is one of the most effective for strengthening the body's yang if it is deficient, or decreasing yang if it is excessive. It is located at the base of the neck, at the junction between the spine and the arms. This is the meeting point of all yang channels in the body. When you hold your arms in the posture correctly, you are routing energy through this point, into the arms. (Make sure you slightly tuck the tailbone, sink your chest and round the back, draw your chin back, and stand up straight to elongate the torso gently.) You should feel very soft in this posture, not tight. Let go of all unnecessary tension.
Muscular tension stagnates, or traps, energy circulation. By holding the arms parallel to the ground, you build an energy field in the arms, and stimulate the governing vessel.
When you relax the limbs (and the rest of the body), Qi flows back toward the center of the body. This is Wai Dan (external elixir) qigong.
In addition, holding the arms out adds weight to the lower back, which energizes this big area between the kidneys and the sacrum.